CORNERSTONE PROPERTIES INC, 10-K, 2000-03-27

CORNERSTONE PROPERTIES INC
10-K, 2000-03-27
REAL ESTATE

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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549

[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1999

[ ] 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)

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<S> <C>
NEVADA 74-2170858
(State or other jurisdiction of
incorporation and organization) (IRS Employer Identification No.)
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126 EAST 56TH STREET
NEW YORK, NEW YORK
(Address of principal executive offices)

10022
(Zip Code)

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

Securities registered pursuant to Section 12(b) of the Act:

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TITLE OF EACH CLASS: NAME OF EACH EXCHANGE ON WHICH REGISTERED:
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Common Stock, no par value New York Stock Exchange
Dusseldorf Stock Exchange
Frankfurt Stock Exchange
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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No _

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of the registrant's knowledge in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendments to
this Form 10-K. [ ]

Aggregate market value of registrant's voting Common Stock held by
non-affiliates as of March 22, 2000: $1,261,226,690.

Number of shares of Common Stock outstanding as of March 22, 2000: 129,289,211.

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PART I

ITEM 1. BUSINESS.

THE COMPANY

Cornerstone Properties Inc. (together with its subsidiaries, "Cornerstone"
or the "Company") is a self-administered equity real estate investment trust
("REIT") which owns, through subsidiaries, interests in 82 Class A office
buildings comprising approximately 18 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 nine major
metropolitan areas throughout the United States: Atlanta, Boston, suburban
Chicago, Minneapolis, New York City, San Francisco Bay Area, Seattle, Southern
California and Washington, D.C. and surrounding suburbs. The Company's strategy
is to own and develop 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. The Company
also provides property management, leasing, development and tenant improvement
services to third parties on a fee basis through WCP Services, Inc., a taxable
corporate subsidiary in which Cornerstone owns 95% of the equity, but only 1% of
the voting common stock. In January 1998, Cornerstone converted its corporate
structure into an umbrella limited partnership REIT ("UPREIT"). Under the UPREIT
structure, Cornerstone owns all of its properties and conducts all of its
business through Cornerstone Properties Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), of which the Company is the sole
general partner. As of March 22, 2000, Cornerstone owned approximately 87.1% of
the common units of partnership interest ("UPREIT Units") in the Operating
Partnership.

The Company was incorporated under the laws of the State of Nevada in
May 1981. The Company's executive offices are located at Tower 56, 126 East
56(th) Street, New York, New York 10022. The Company has an internet website at
"http://www.cstoneprop.com".

BUSINESS STRATEGY

OPERATING STRATEGY

The Company seeks to achieve growth in its existing portfolio through the
following:

- Rental income increases as below-market leases expire and space is re-let
at higher current market rents.

- Strong emphasis on regular maintenance of the Properties as well as
periodic refurbishment, renovation and redevelopment where such investment
increases operating efficiency and provides attractive returns and cash
flow growth.

- A proactive leasing program directed toward the retention of existing
tenants, and the leasing of additional space to those tenants, reducing
the cost of lease rollovers and rental revenue fluctuations by removing
"down" periods between tenant occupancies and reducing the "up front"
costs (tenant improvements and leasing commissions) of signing leases.

FINANCING STRATEGY

The Company's financing strategy: (i) incorporates long-term secured and
unsecured corporate debt; (ii) minimizes exposure to fluctuations of interest
rates; and (iii) maintains maximum flexibility to manage the Company's
short-term cash needs. The Company uses leverage prudently to take advantage of
what it believes to be the positive spread between the total return on
investment and the cost of debt financing in the Class A office property market.
Historically, the Company has employed somewhat higher levels of leverage than
property companies holding assets of lesser quality, since the Company's
high-quality assets and tenancy have generally produced occupancy rates, rent
levels and income streams that are higher and more stable than those associated
with lower quality assets.

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The Company has a $550.0 million line of credit with a term through
November 3, 2001 (the "Revolving Credit Facility"). The Revolving Credit
Facility is with a syndicate of 17 banks led by Deutsche Bank, The Chase
Manhattan Bank and Bank of America. The Revolving Credit Facility has been used
for the acquisition of additional properties as well as for general working
capital purposes. Borrowings under the Revolving Credit Facility bear interest
at a rate between 1.10% and 1.40% above the applicable London Interbank Offered
Rate ("LIBOR"), depending upon the Company's ratio of total debt to asset value
(as defined) at the time of borrowing or the Prime Rate at the borrower's
option. The Revolving Credit Facility is also available for the issuance of
letters of credit.

RECENT DEVELOPMENTS

EQUITY OFFICE PROPERTIES TRUST MERGER AGREEMENT. On February 11, 2000, the
Company announced that it had entered into an agreement and plan of merger with
Equity Office Properties Trust ("EOP") (the "EOP Merger"). The merger agreement
provides for a merger of Cornerstone with and into EOP and a merger of the
Operating Partnership with and into EOP Operating Limited Partnership. In the
mergers, holders of common stock of Cornerstone and holders of Units in the
Operating Partnership shall be entitled to elect to receive, for each share or
unit, as the case may be, either 0.7009 of a share of beneficial interest of EOP
(or, in the case of the Cornerstone Units, 0.7009 of a Class A Unit of EOP
Operating Limited Partnership), or $18.00 per share (or per Unit, as the case
may be) in cash, subject to pro ration as provided in the merger agreement. Each
share of 7% Cumulative Convertible Preferred Stock, liquidation preference
$16.50 per share, of Cornerstone shall be converted into the right to receive
$18.00, plus accrued and unpaid dividends, in cash. For U.S. federal income tax
purposes, the merger is expected to be tax-free to Cornerstone stockholders who
are U.S. persons and who receive EOP shares in the merger, except that any such
stockholder who receives cash in addition to EOP shares generally will recognize
gain (but not loss) in an amount equal to the amount of cash received in the
merger, or, if less, the excess of the fair market value of the EOP shares and
cash received in the merger over the stockholder's basis in the Cornerstone
common stock exchanged in the merger. The merger is also expected in most cases
to be tax-free to Cornerstone stockholders who are non-U.S. persons, although
certain non-U.S. stockholders may be subject to U.S. tax under the provisions of
the Foreign Investment in Real Property Tax Act. The mergers are subject to
customary closing conditions, including the approval of the merger by the
shareholders of EOP and the stockholders of Cornerstone and the approval of the
partnership merger, to the extent necessary, by the partners of EOP Operating
Limited Partnership and the Operating Partnership.

PROPERTY DISPOSITIONS. In 1999, the Company sold its interest in 13 office
properties for gross proceeds of $495,705,000, comprising approximately
3.0 million rentable square feet in Charlotte, Denver, Phoenix (four
properties), the San Francisco Bay Area (six properties) and Southern
California. Also during 1999, the Company acquired a six-acre development
project in the San Francisco Bay Area for approximately $36 million. On
March 15, 2000 and March 23, 2000, the Company sold its interest in two
Properties located in East Bay, California for gross proceeds of $14,425,000 and
$12,800,000, respectively. The Properties had been acquired as part of the
Wilson Acquisition in December 1998.

TERMS OF THE REVOLVING CREDIT FACILITY. During 1999, the Company amended
the restrictive covenants contained in the Revolving Credit Facility. The
amendment allowed the Company temporarily to increase its leverage by increasing
the limitation on total liabilities to total property asset value (as defined)
from 55.0% to 60.0% for a short period, which has since expired. The Company
also increased its ability to enter into mortgage debt by decreasing the
required ratio of total property asset value (as defined) to secured
indebtedness from 2.5 to 1.00 to 2.22 to 1.00.

PRUDENTIAL/NORTHWESTERN DEBT RESTRUCTURING. On June 23, 1999, the Company
restructured approximately $163.0 million of property-related debt with
Prudential Insurance of Company 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 term 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.

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UNITHOLDER REDEMPTIONS. On July 30, 1999, 562,588 UPREIT Units were
redeemed for shares of Common Stock on a one-for-one basis; on August 3, 1999,
562,587 UPREIT Units were redeemed for shares of Common Stock on a one-for-one
basis; and on March 8, 2000, 9,200 UPREIT Units were redeemed for shares of
Common Stock on a one-for-one basis. On September 9, 1999 and January 10, 2000,
76,647 and 34,201 UPREIT Units were redeemed for cash equal to $15.25 and $14.99
per unit, respectively.

NORTHWESTERN DEBT RESTRUCTURING. On October 6, 1999, the Company
restructured approximately $219.9 million of individual property-related debt
with Northwestern Mutual Life Insurance Company. The restructuring involved
retiring the individual property-related debt and creating a single
$275.0 million term loan which is cross-collateralized by five of the original
six properties. The loan has a ten-year term and bears interest at 7.23%. Upon
closing the loan, the lien on 10 Almaden was released and the property was added
to Cornerstone's unencumbered pool.

DEVELOPMENT PROJECT MODIFICATION. In April 1998, the Company entered into a
contract to acquire from the developer the 928,857 square-foot Piper Jaffray
building under construction in Minneapolis. In November 1999, this contract was
amended in connection with a 350,000 square-foot expansion lease with a major
tenant of the building. The contract was amended to provide for a purchase price
equal to the costs incurred in construction and development plus a fixed amount
to the developer plus an additional amount based on the leasing of the building.
In addition, at the Company's election, the closing of the acquisition may occur
prior to the completion of the building, but the developer will remain obligated
to complete the project.

STOCK REPURCHASE PROGRAM. On December 9, 1999, the Company's Board of
Directors approved a stock repurchase program ("Repurchase Program") under which
the Company is permitted to purchase up to $100.0 million of the Company's
outstanding Common Stock. The Board authorized the Company to make periodic
purchases on or prior to December 31, 2000 using available working capital,
either on the open market at prevailing prices or in privately negotiated
transactions. As of December 31, 1999, the Company had repurchased 347,400
shares of its outstanding Common Stock for an aggregate cost of approximately
$4.9 million. The Repurchase Program has been discontinued as a result of the
merger with EOP.

QUARTERLY DIVIDEND INCREASE AND DIVIDEND DECLARATION. On January 20, 2000,
the Board of Directors increased the Company's quarterly dividend to $0.31 per
share/unit to an annualized rate of $1.24 per share/unit. On this date, a
distribution for the first quarter of 2000 of $0.31 per share/unit was declared
to Common Stockholders and Unitholders of record as of January 31, 2000. This
distribution was paid on February 29, 2000. On March 8, 2000, as provided in the
merger agreement with EOP, the Board of Directors declared a distribution of
$0.20 per share/unit, payable on April 14, 2000, to Common Stockholders and
Unitholders of record as of March 31, 2000. This distribution was declared to
make Cornerstone's distribution schedule consistent with that of EOP pending the
merger (see above). Thereafter, it is anticipated that Cornerstone's
distributions will be paid as of the end of each quarter until the completion of
the EOP Merger.

400 CAPITOL MALL ACQUISITION. On January 21, 2000, the Company purchased
400 Capitol Mall in Sacramento, California. This property contains approximately
502,000 rentable square feet. The total purchase price for the Property was
approximately $130.0 million, consisting of approximately $128.0 million in cash
which were Section 1031 exchange funds from the sale of One Norwest Center in
Denver, Colorado, and approximately $2.0 million of which was paid in UPREIT
Units valued at $17.25 per unit.

RISK FACTORS

Set forth below are the risks that we believe are material to investors who
purchase or own the Company's Common Stock or Units of limited partnership
interest of the Operating Partnership, which are redeemable on a one-for-one
basis for shares of Common Stock or, at our option, cash.

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OUR PERFORMANCE AND SHARE VALUE ARE SUBJECT TO RISKS ASSOCIATED WITH THE REAL
ESTATE INDUSTRY

GENERAL. If our assets do not generate income sufficient to pay our
expenses, service our debt and maintain our properties, we may not be able to
make expected distributions to our stockholders. Several factors may adversely
affect the economic performance and value of our Properties. These factors
include among other things, changes in the national, regional and local economic
climate, local conditions such as an oversupply of office properties or a
reduction in demand for office properties, the attractiveness of our Properties
to tenants, competition from other available office properties, changes in
market rental rates and the need to periodically repair, renovate and relet
space. Our performance also depends on our ability to collect rent from tenants
and to pay for adequate maintenance, insurance and other operating costs
(including real estate taxes), which could increase over time. Also, the
expenses of owning and operating a property are not necessarily reduced when
circumstances such as market factors and competition cause a reduction in income
from the property. If a Property is mortgaged and we are unable to meet the
mortgage payments, the lender could foreclose on the mortgage and take the
Property. In addition, interest rate levels, the availability of financing,
changes in laws and governmental regulations (including those governing usage,
zoning and taxes) and financial distress or bankruptcies of tenants may
adversely affect our financial condition.

WE MAY BE UNABLE TO RENEW LEASES OR RELET SPACE AS LEASES EXPIRE. If our
tenants decide not to renew their leases upon their expiration, we may not be
able to relet the space. Even if the tenants do renew or we can relet the space,
the terms of renewal or reletting, including the cost of required renovations,
may be less favorable than current lease terms. Through the end of 2004, leases
will expire on a total of 53.6% of the "Annualized Rent" (the annualized monthly
gross contractual rent under existing leases as of December 31, 1999). If we are
unable to promptly renew the leases or relet this space, or if the rental rates
upon such renewal or reletting are significantly lower than expected rates, then
our results of operations and financial condition will be adversely affected.
Consequently, our cash flow and ability to service debt and make distributions
to stockholders would be adversely affected.

DISPOSITIONS MAY NOT PROVIDE FAVORABLE RETURNS. Whether or not the EOP
Merger takes place, the Company intends to continue the strategy of selling
non-core Properties. If the sale prices for such Properties are less than we
expect, the Company's disposition plan may fail to deliver expected returns. If
we fail to sell such Properties in a timely fashion at attractive prices, our
financial position and results of operations could be adversely affected.

NEW ACQUISITIONS MAY FAIL TO PERFORM AS EXPECTED. The Company has continued
to selectively acquire office properties. Newly acquired properties may fail to
perform as expected. If newly acquired properties fail to deliver expected
returns, our ability to service debt incurred in connection with such
acquisitions and to make distributions to stockholders would be adversely
affected.

COMPETITION FOR ACQUISITIONS MAY RESULT IN INCREASED PRICES FOR
PROPERTIES. Other major real estate investors with greater access to capital
than we have will compete with us for attractive investment opportunities. These
competitors include other publicly traded REITs, private REITs, investment
banking firms and private institutional investment funds. This competition has
increased prices for office properties in recent years. As prices increase, the
spread between the rate of return on investments and our cost of capital is
reduced. Accordingly, the increase in prices for acquisitions will make it more
difficult for us to make suitable property acquisitions on favorable terms.

BECAUSE CORNERSTONE'S PROPERTIES ARE ILLIQUID AND SUBJECT TO RESTRICTIONS ON
SALE, WE MAY NOT BE ABLE TO SELL PROPERTIES AT THE MOST FAVORABLE TIMES. Real
estate investments, especially office property investments of relatively large
size, generally cannot be sold quickly. We may not be able to vary our portfolio
promptly in response to economic or other conditions. This inability to respond
promptly to changes in the performance of our investments could adversely affect
our financial condition and ability to service debt and make distributions to
our stockholders. Further, Cornerstone has entered into several agreements
pursuant to which Cornerstone has subjected a number of its Properties,
including all of the Properties

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acquired in the Wilson Acquisition, to restrictions that may adversely impact
Cornerstone's ability to sell or otherwise dispose of such Properties if such
disposal would result in certain adverse tax consequences for the former owners
of such Properties. The Operating Partnership is also subject to a number of
similar sale and merger restrictions and debt maintenance obligations in
connection with certain of its Properties under the terms of amendments to the
partnership agreement of the Operating Partnership entered into at the time of
acquisition of such Properties. These restrictions may prevent us from selling
Properties on favorable terms and thereby could adversely affect our financial
position and results of operations.

CORNERSTONE'S ASSETS ARE CONCENTRATED IN THE SAN FRANCISCO BAY AREA. 39 of
the Company's 83 office Properties are located in the San Francisco Bay Area.
This concentration of assets makes the Company particularly vulnerable to
adverse changes in the San Francisco Bay Area economy. A deterioration of
economic conditions in this market would have an adverse effect on our results
of operations and our ability to make expected distributions to stockholders.

CORNERSTONE'S ASSETS ARE CONCENTRATED IN EARTHQUAKE-PRONE AREAS. 57 of our
office Properties are located in California, an area of particular earthquake
risk. A major earthquake in California may cause substantial damage to or
destruction of our Properties. We carry earthquake insurance on all of our
Properties located in California. Our earthquake policies, however, are subject
to coverage limitations and substantial deductibles. In light of the California
earthquake risk, California building codes since the early 1970s have
established construction standards for all new buildings which require buildings
to be constructed in such a manner as to minimize the effects of an earthquake.
The current and strictest construction standards were adopted in 1987. Of the 57
office Properties located in California as of March 22, 2000, 23 have been built
or significantly renovated since January 1, 1988, and we believe they were
constructed substantially in compliance with the applicable standards existing
at the time of construction. It is possible, however, that material losses in
excess of insurance proceeds will occur in the future, which would have a
material adverse impact on the Company's financial position.

WE ARE DEPENDENT ON EXTERNAL SOURCES OF CAPITAL

To qualify as a REIT for federal income tax purposes we must distribute to
stockholders each year at least 95% (90% beginning in 2001) of our "REIT taxable
income" (excluding any net capital gain). Because of these distribution
requirements, there may be situations in which we would not be able to fund
certain capital needs. We therefore will have to rely on third-party sources of
capital, which may or may not be available on favorable terms or at all. Our
access to third-party sources of capital depends on a number of things,
including the market's perception of our growth potential and our current and
potential future earnings. Moreover, additional equity offerings may result in
substantial dilution of stockholders' interests, and additional debt financing
may substantially increase our leverage.

DEBT FINANCING, FINANCIAL COVENANTS, DEGREE OF LEVERAGE AND INCREASES IN
INTEREST RATES COULD ADVERSELY AFFECT OUR PERFORMANCE

SCHEDULED DEBT PAYMENTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. Our
business is subject to risks normally associated with debt financing. Cash flow
could be insufficient to pay distributions at expected levels and meet required
payments of principal and interest. We may not be able to refinance existing
indebtedness (which in virtually all cases requires substantial principal
payments at maturity) and, if we can, the terms of such refinancing might not be
as favorable as the terms of existing indebtedness. See "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources." If principal payments due at maturity cannot be refinanced,
extended or paid with proceeds of other capital transactions, such as new equity
capital, our cash flow will not be sufficient in all years to repay all maturing
debt. If prevailing interest rates or other factors at the time of refinancing
(such as the possible reluctance of lenders to make commercial real estate
loans) result in higher interest rates, increased interest expense would
adversely affect cash flow and our ability to service debt and make
distributions to stockholders.

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FINANCIAL COVENANTS COULD ADVERSELY AFFECT OUR FINANCIAL CONDITION. If a
Property is mortgaged to secure payment of indebtedness and we are unable to
meet mortgage payments, the mortgagee could foreclose on the Property, resulting
in loss of income and asset value for the Company. The mortgages on our
Properties contain customary negative covenants which, among other things, limit
our ability, without the prior consent of the lender, to further mortgage the
Property, to enter into new leases or materially modify existing leases, and to
discontinue insurance coverage. In addition, our Revolving Credit Facility
contains certain customary restrictions, requirements and other limitations on
our ability to incur indebtedness. Foreclosure on mortgaged Properties or an
inability to refinance existing indebtedness would likely have a negative impact
on our financial condition and results of operations.

OUR DEGREE OF LEVERAGE COULD LIMIT OUR ABILITY TO OBTAIN ADDITIONAL
FINANCING. Our Debt-to-Total-Market-Capitalization Ratio, which is defined as
the total indebtedness of the Company as a percentage of total indebtedness plus
the market value of the outstanding shares of Common Stock (assuming the
conversion of all outstanding shares of preferred stock and the redemption of
all UPREIT Units into shares of Common Stock) as of December 31, 1999 was
approximately 44.5%. The degree of leverage could have important consequences to
stockholders, including affecting our ability to obtain additional financing in
the future for working capital, capital expenditures, acquisitions, development
or other general corporate purposes and making us more vulnerable to a downturn
in business or the economy in general.

RISING INTEREST RATES COULD ADVERSELY AFFECT CASH FLOW. Advances under the
Revolving Credit Facility bear interest at a variable rate based upon LIBOR
depending upon the Company's leverage ratio. We had, as of March 22, 2000,
interest rate hedging agreements for approximately $250.0 million of our
floating rate debt to limit our exposure to rising interest rates through
December 31, 2000. Although hedging agreements enable us to convert floating
rate liabilities to fixed rate liabilities, they expose us to the risk that the
counterparties to such hedge agreements may not perform, which could increase
our exposure to rising interest rates. We may borrow additional money with
variable interest rates in the future, and enter into other transactions to
limit our exposure to rising interest rates as appropriate. Increases in
interest rates, or the loss of the benefits of hedging agreements, would
increase our interest expense, which would adversely affect cash flow and our
ability to service our debt and make expected distributions to stockholders.

PGGM AND WILLIAM WILSON III EXERCISE SIGNIFICANT INFLUENCE OF CORPORATE
GOVERNANCE MATTERS

PGGM owns approximately 35.4% of the outstanding shares of Common Stock as
of March 22, 2000. As a result, PGGM exercises significant influence over the
outcome of any matters submitted to a vote of stockholders. PGGM also has the
right to designate two individuals for nomination to the Board of Directors of
the Company. The Restated and Amended Bylaws of the Company provide that William
Wilson III shall serve as Chairman of the Board for a term of at least three
years from the date of the Wilson Acquisition, December 16, 1998, and during
such term Mr. Wilson will have the right to designate himself and two other
individuals to serve as directors of the Company. These provisions give
Mr. Wilson significant influence over the management of the Company. In
exercising their control, PGGM and Mr. Wilson may have interests that differ
from those of other stockholders with respect to prospective acquisitions or
dispositions of assets, development opportunities, compensation policy, setting
the appropriate degree of leverage for the Company or other matters.

WE HAVE A SHARE OWNERSHIP LIMIT FOR REIT TAX PURPOSES

To remain qualified as a REIT for federal income tax purposes, not more than
50% of the value of our Common Stock outstanding may be owned, directly or
indirectly, by five or fewer individuals (as defined in the federal income tax
laws applicable to REITs) at any time during the last half of any year. To
facilitate maintenance of our REIT qualification, our Articles of Incorporation
contain restrictions on share ownership that are designed to prevent violation
of this requirement. We refer to this as the "Ownership Limit." Our Articles of
Incorporation exempt certain stockholders from the Ownership Limit and permit
the Board of Directors to waive or modify the Ownership Limit with respect to a
stockholder where such exemption or waiver would not jeopardize our REIT status.
The Ownership Limit could delay or prevent a change in control and, therefore,
could adversely affect our stockholders' ability to realize a premium over the
then-prevailing market price for the Common Stock.

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THIRD-PARTY SERVICES BUSINESS RISKS; LACK OF CONTROL OF WCP SERVICES, INC.

THIRD-PARTY SERVICES CONTRACTS MAY BE TERMINATED. In addition to ownership
of our Properties, we provide fee-based management, leasing, construction and
development services for third parties through WCP Services, Inc. Many of these
services are provided under contracts that can be terminated by either party
upon short or no notice. Any such contract would likely be terminated in
connection with a sale of the property, over which we have no control. When they
expire, these contracts might not be renewed or might be renewed on less
favorable terms. Also, the rental revenues on which certain management fees are
based could decline as a result of general real estate market conditions or
specific market factors. This would result in decreased management fee income
for the Company.

WE DO NOT CONTROL OUR MANAGEMENT AND SERVICES BUSINESS. To facilitate
maintenance of our REIT qualification, our third-party services business is
conducted by WCP Services, Inc. Although we own 95% of the economic interest in
WCP Services, Inc., 99% of its voting stock is owned by William Wilson III and
John S. Moody. We therefore do not control the timing or amount of distributions
or the management and operation of WCP Services, Inc. As a result, decisions
relating to the declaration and payment of distributions and the business
policies and operations of WCP Services, Inc. could be adverse to our interests
or could lead to adverse financial results.

ENVIRONMENTAL PROBLEMS ARE POSSIBLE AND CAN BE COSTLY

Federal, state and local laws and regulations relating to the protection of
the environment may require a current or previous owner or operator of real
estate to investigate and clean up hazardous or toxic substances or petroleum
product releases at such property. The owner or operator may have to pay a
governmental entity or third parties for property damage and for investigation
and clean-up costs incurred by such parties in connection with the
contamination. Such laws typically impose clean-up responsibility and liability
without regard to whether the owner or operator knew of or caused the presence
of the contaminants. Even if more than one person may have been responsible for
the contamination, each person covered by the environmental laws may be held
responsible for all of the clean-up costs incurred. In addition, third parties
may sue the owner or operator of a site for damages and costs resulting from
environmental contamination emanating from that site.

We are not aware of any environmental liabilities at the Properties that we
believe would have a material adverse effect on our business, assets, financial
condition or results of operations. Unidentified environmental liabilities could
arise, however, and could have an adverse effect on our financial condition and
performance.

THE MARKET VALUE OF THE COMMON STOCK CAN BE ADVERSELY AFFECTED BY A NUMBER OF
FACTORS

CHANGES IN MARKET CONDITIONS COULD ADVERSELY AFFECT THE MARKET PRICE OF OUR
SHARES. As with other publicly traded shares, the value of our Common Stock
depends on various market conditions, which may change from time to time. Among
the market conditions that may affect the value of our publicly traded
securities are the following: the extent of institutional investor interest in
the Company; the reputation of REITs and office REITs generally and the
attractiveness of their equity securities in comparison to other equity
securities (including securities issued by other real estate companies); our
financial condition and performance; and general financial market conditions.

OUR EARNINGS AND CASH DISTRIBUTIONS WILL AFFECT THE MARKET PRICE OF OUR
SHARES. We believe that the market value of a REIT's common stock is based, at
least in part, upon the market's perception of the REIT's growth potential and
its current and potential future cash distributions, as well as upon the real
estate market value of the underlying assets. For that reason, our Common Stock
may trade at prices that are higher or lower than the net asset value per share.
Our failure to meet the market's expectations with

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regard to future earnings and cash distributions would likely adversely affect
the market price of our Common Stock.

MARKET INTEREST RATES MAY HAVE AN EFFECT ON THE VALUE OF OUR SHARES. One of
the factors that investors consider important in deciding whether to buy or sell
shares of a REIT is the distribution rate on such shares (as a percentage of the
price of such shares) relative to market interest rates. If market interest
rates go up, prospective purchasers of REIT shares may expect a higher
distribution rate. Higher interest rates would not, however, result in more
funds for us to distribute and, in fact, would likely increase our borrowing
costs and potentially decrease funds available for distribution. Thus, higher
market interest rates could cause the market price of our Common Stock to go
down.

OUR SUCCESS AS A REIT IS DEPENDENT ON COMPLIANCE WITH FEDERAL INCOME TAX
REQUIREMENTS

FAILURE TO QUALIFY AS A REIT WOULD HAVE SERIOUS ADVERSE CONSEQUENCES TO OUR
STOCKHOLDERS. We have made an election to be taxed as a REIT and believe that
we meet the requirements for qualification and taxation as a REIT. We plan to
continue to meet the requirements for taxation as a REIT. Many of these
requirements, however, are highly technical and complex. The determination that
the Company is a REIT requires an analysis of various factual matters and
circumstances that may not be totally within our control. For example, to
qualify as a REIT we must meet certain tests regarding the sources of our gross
income and the nature of our assets. The Company is also required to distribute
to stockholders at least 95% (90% beginning in 2001) of its "REIT taxable
income" (excluding net capital gains). The fact that we hold our assets through
the Operating Partnership and its subsidiaries further complicates the
application of the REIT requirements. Even a technical or inadvertent mistake
could jeopardize our REIT status. Furthermore, Congress and the Internal Revenue
Service ("IRS") might make changes to the tax laws and regulations, and the
courts might issue new rulings that make it more difficult, or impossible, for
the Company to remain qualified as a REIT.

If the Company fails to qualify as a REIT, the Company would be subject to
federal and in many cases state income taxes at regular corporate rates. Also,
unless the IRS granted the Company relief under certain statutory provisions,
the Company would remain disqualified as a REIT for four years following the
year the Company first failed to qualify. If the Company failed to qualify as a
REIT, the Company would have to pay significant income taxes and would therefore
have less money available for investments or for distributions to stockholders.
This would likely have a significant adverse effect on the value of our Common
Stock. In addition, the Company would no longer be required to make any
distributions to stockholders.

EFFECT OF REIT DISTRIBUTION REQUIREMENTS. To qualify as a REIT, we are
required each year to distribute to our stockholders at least 95% (90% beginning
in 2001) of our "REIT taxable income" (excluding net capital gains). We are
subject to federal income tax on any net income that we do not distribute. In
addition, we are subject to a nondeductible 4% excise tax on the amount, if any,
by which certain distributions we pay with respect to any calendar year are less
than the sum of 85% of our ordinary income and 95% of our capital gain net
income for the calendar year, plus any amount of such income not distributed in
prior years. Although we anticipate that cash flow from operations will be
sufficient to enable us to pay our operating expenses and meet the distribution
requirements discussed above, there can be no assurance that this will be the
case. In addition, there could be differences in timing between the accrual of
income and the deduction of expenses in arriving at our taxable income. Under
certain circumstances, it may be necessary for us to incur borrowings or
otherwise obtain funds to satisfy the distribution requirements associated with
maintaining qualification as a REIT. There can be no assurance that we will be
able to borrow funds or otherwise obtain funds if and when necessary to satisfy
such requirements.

9
<PAGE>
GOVERNMENTAL REGULATIONS MAY IMPOSE SIGNIFICANT COSTS ON OUR BUSINESS

The Properties are, and properties that the Company may acquire in the
future will be, subject to various other federal, state and local regulatory
requirements such as local building codes and other similar regulations. Failure
to comply with these requirements could result in the imposition of fines by
governmental authorities or awards of damages to private litigants. The Company
believes that the Properties are currently in substantial compliance with all
applicable regulatory requirements. Although no material expenditures are
contemplated at this time in order to comply with any such laws or regulations,
there can be no assurance that these requirements will not be changed or that
new requirements will not be imposed that would require significant
unanticipated expenditures by the Company, which could have an adverse effect on
the Company and its ability to make distributions to stockholders. Similarly,
changes in laws increasing the potential liability for environmental conditions
existing at the Properties may result in significant unanticipated expenditures,
which could adversely affect the Company and its ability to make expected
distributions to stockholders.

TAX STATUS

The Company has elected to be taxed as a REIT for federal income tax
purposes and believes that it has met the requirements for qualification and
taxation as a REIT commencing with its taxable year ended December 31, 1983. As
a REIT, the Company generally is not subject to corporate federal income tax on
net income that it currently distributes to its stockholders, provided that the
Company satisfies certain technical requirements relating to, among other
things, the composition of its gross income and assets and the requirements to
distribute at least 95% (90% beginning in 2001) of its "REIT taxable income" to
stockholders.

COMPETITION

The leasing of real estate is highly competitive. The Company's Properties
compete for tenants with similar properties located in its markets primarily on
the basis of location, rent charged, services provided and the design and
condition of the improvements. The Company also experiences competition when
attempting to acquire interests in desirable real estate, including competition
from domestic and foreign financial institutions, other REITs, life insurance
companies, pension trusts, trust funds, partnerships and individual investors.
In addition, the Company competes for the acquisition of building sites or
redevelopment opportunities with domestic and foreign financial institutions,
other REITs, life insurance companies, pension trusts, trust funds, partnerships
and individual investors.

INDUSTRY SEGMENTS

The Company has one reportable segment--real estate. The Company does not
have foreign operations and its business is not seasonal. Refer to the Notes to
Consolidated Financial Statements which are part of this report for further
discussion.

EMPLOYEES

As of December 31, 1999, the Company had approximately 340 employees.

DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS

In passing the Private Securities Litigation Reform Act of 1995 (the "Reform
Act"), 15 U.S.C.A. Section 77z-2 and 78u-5 (Supp. 1996), Congress encouraged
public companies to make "forward-looking statements" by creating a safe harbor
to protect companies from securities law liability in connection with
forward-looking statements. Cornerstone intends to qualify both its written and
oral forward-looking statements for protection under the Reform Act and any
other similar safe harbor provisions.

10
<PAGE>
"Forward-looking statements" are defined by the Reform Act. Generally,
forward-looking statements include expressed expectations of future events and
the assumptions on which the expressed expectations are based. All
forward-looking statements are inherently uncertain as they are based on various
expectations and assumptions concerning future events and they are subject to
numerous known and unknown risks and uncertainties which could cause actual
events or results to differ materially from those projected. Due to those
uncertainties and risks, the investment community is urged not to place undue
reliance on written or oral forward-looking statements of Cornerstone. The
Company undertakes no obligation to update or revise this Safe Harbor Compliance
Statement for Forward-Looking Statements to reflect future developments. In
addition, Cornerstone undertakes no obligation to update or revise
forward-looking statements to reflect changed assumptions, the occurrence of
unanticipated events or changes to future operating results over time.

The "forward-looking statements" contained in this document are made under
the captions "Business--The Company", "--Business Strategy", "--Recent
Developments", "--Risk Factors", "--Tax Status", "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Results of
Operations" and "--Liquidity and Capital Resources". Moreover, the Company,
through its senior management, may from time to time make "forward-looking
statements" about matters described herein or other matters concerning the
Company.

Stockholders are cautioned that any such forward-looking statements are not
guarantees of future performance and involve risks and uncertainties and that
actual results may differ materially from those contemplated by such
forward-looking statements. Important factors known to management of Cornerstone
that could cause actual results to differ materially from those contemplated by
the forward-looking statements include, but are not limited to, difficulties
related to acquisitions and integrations of real estate companies or portfolios,
adverse changes in real estate markets, increases in interest rates, increased
development of properties that compete with the Company's portfolio, earthquakes
or other casualties in areas where a substantial number of the Company's
buildings are located, risks related to the Company's liquidity and capital
requirements, risks of a deterioration in general economic conditions and other
matters disclosed under the caption "Risk Factors" herein.

11
<PAGE>
ITEM 2. PROPERTIES

TABLE OF PROPERTIES

The following table summarizes Cornerstone's interest in real estate
investments at December 31, 1999:

<TABLE>
<CAPTION>
MARKET NAME TOTAL RENTABLE CORNERSTONE YEAR
PROPERTY SQUARE FEET INTEREST (A) CONSTRUCTED LEASED 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% C
222 Berkeley Street....................................... 530,844 91.5% 1991 100% C
125 Summer Street......................................... 463,691 100.0% 1989 74%
One Memorial Drive........................................ 352,764 100.0% 1985 100% D
---------- ----
MARKET TOTAL.............................................. 2,884,826 96%

SAN MATEO COUNTY, CALIFORNIA
Bayhill (4 buildings)..................................... 514,255 100.0% 1982-1987 96% E
Peninsula Office Park (7 buildings)....................... 492,044 100.0% 1971-1998 100% 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 99% E
---------- ----
MARKET TOTAL.............................................. 1,903,308 99%

ATLANTA, GEORGIA
191 Peachtree Street...................................... 1,215,288 80.0% 1991 98% C,F
200 Galleria.............................................. 432,698 100.0% 1985 98% C
---------- ----
MARKET TOTAL.............................................. 1,647,986 98%

EAST BAY, CALIFORNIA
Corporate Centre (2 buildings)............................ 329,348 100.0% 1985-1987 96% E
ADP Plaza (2 buildings)................................... 300,308 100.0% 1987-1989 95% E
PeopleSoft Plaza.......................................... 277,562 100.0% 1984 100% E
Norris Tech Center (3 buildings).......................... 260,513 100.0% 1984-1990 100% E
Golden Bear Center........................................ 160,587 100.0% 1986 99% E
2700 Ygnacio Valley Road.................................. 103,214 100.0% 1984 99% E
Park Plaza................................................ 87,040 100.0% 1986 100% E
1600 South Main........................................... 83,277 100.0% 1983 98% E
---------- ----
MARKET TOTAL.............................................. 1,601,849 98%

SEATTLE, WASHINGTON
Washington Mutual Tower (3 buildings)..................... 1,154,560 50.0% 1988 98% G
110 Atrium Place.......................................... 215,172 100.0% 1981 100% E
Island Corporate Center................................... 100,009 100.0% 1987 97% E
---------- ----
MARKET TOTAL.............................................. 1,469,741 98%

SANTA CLARA COUNTY, CALIFORNIA
Pruneyard Office (3 buildings)............................ 354,629 100.0% 1971-1999 99% E,H
10 Almaden................................................ 294,809 100.0% 1989 100% E
Pruneyard Shopping Center................................. 252,210 100.0% 1970s 90% E
Embarcadero Place (4 buildings)........................... 192,081 100.0% 1984 100% E
Pruneyard Inn............................................. 94,500 100.0% 1989 N/A E,I
---------- ----
MARKET TOTAL.............................................. 1,188,229 98%

SAN FRANCISCO, CALIFORNIA
120 Montgomery Street..................................... 420,310 66.7% 1955 95% E
One Post.................................................. 391,450 50.0% 1969 99% E
201 California Street..................................... 240,230 100.0% 1980 96% J
188 Embarcadero........................................... 85,183 100.0% 1985 99% E
---------- ----
MARKET TOTAL.............................................. 1,137,173 97%
</TABLE>

12
<PAGE>

WASHINGTON, D.C./ALEXANDRIA, VIRGINIA
Market Square (2 buildings)............................... 688,709 70.0% 1990 99% C,L
99 Canal Center........................................... 137,945 100.0% 1986 100% C
TransPotomac Plaza 5...................................... 96,392 100.0% 1983 100% C
11 Canal Center........................................... 70,365 100.0% 1986 98% C
---------- ----
MARKET TOTAL.............................................. 993,411 99%

SUBURBAN CHICAGO, ILLINOIS
Corporate 500 Centre (4 buildings)........................ 679,039 100.0% 1986/1990 99% M
One Lincoln Centre........................................ 297,040 100.0% 1986 89%
---------- ----
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 100% E
Commerce Park............................................. 94,367 100.0% 1977 79% E,O
429 Santa Monica.......................................... 83,243 100.0% 1982 88% E
---------- ----
MARKET TOTAL.............................................. 848,112 95%

ORANGE COUNTY, CALIFORNIA
Bixby Ranch............................................... 277,289 100.0% 1987 98% E
18301 Von Karman.......................................... 219,508 100.0% 1991 88% E
2677 North Main........................................... 213,318 100.0% 1987 94% E
---------- ----
MARKET TOTAL.............................................. 710,115 94%

SAN DIEGO, CALIFORNIA
Centerside II............................................. 286,949 100.0% 1987 93% E
Crossroads................................................ 133,553 100.0% 1983 100% E
---------- ----
MARKET TOTAL.............................................. 420,502 95%

NEW YORK CITY, NEW YORK
527 Madison Avenue........................................ 215,332 100.0% 1986 100%
Tower 56.................................................. 163,633 100.0% 1983 99% P
---------- ----
MARKET TOTAL.............................................. 378,965 99%

LOS ANGELES, CALIFORNIA
700 North Brand........................................... 202,531 100.0% 1981 94% E
Warner Park Center........................................ 57,366 100.0% 1986 100% E
---------- ----
MARKET TOTAL.............................................. 259,897 95%

CONEJO VALLEY (VENTURA), CALIFORNIA
Westlake Spectrum (2 buildings)........................... 118,990 100.0% 1990 97% E
Agoura Hills.............................................. 115,208 100.0% 1987 100% E
---------- ----
MARKET TOTAL.............................................. 234,198 99%

OTHER REGIONS
U.S. West (Murray, Utah).................................. 136,608 100.0% 1985 76% E
Exposition Centre (Sacramento, California)................ 72,971 100.0% 1984 70% E
---------- ----
MARKET TOTAL.............................................. 209,579 74%
---------- ----
TOTAL PORTFOLIO........................................... 17,981,409 97%
Minority Interest Adjustment (Q).......................... (728,307)
---------- ----
CORNERSTONE PORTFOLIO..................................... 17,253,102 96%
========== ====
</TABLE>

13
<PAGE>
- ------------------------

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

(B) On December 31, 1997, the Company purchased the second mortgage on Sixty
State Street. The mortgage is a cash flow mortgage through which all the
economic benefits/risks (subject to the first mortgage) inure to the
Company. The Company controls all major decisions regarding management and
leasing. The total purchase price for the second mortgage was
$131.5 million and is consolidated in Buildings due to the above factors.
The $78.4 million first mortgage on the Property was originally recorded by
the Company as an $89.6 million liability due to its above-market interest
rate.

The second mortgage, which the Company holds, is collateralized only by the
improvements on Sixty State Street. Title to the improvements is owned by
Sixty State Street Trust, the ground lessee under a ground lease that
expires on December 28, 2067. The lease payments on the ground lease are
$398,896 per annum throughout the term.

(C) On 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.
The Company has since sold the asset in Charlotte as well as the undeveloped
parcel of land in Chicago.

(D) 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.

(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 has since sold
eleven assets comprising approximately 1.2 million square feet.

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.

14
<PAGE>
the amount of $145.0 million, which earns interest at 9.375% and will
receive a priority distribution on its acquired capital base. In 1999, the
partner in the transaction, CH Associates, Ltd., received an annual
Incentive Distribution (as defined) of $250,000, 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 year ended December 31, 1999, the Company
received 100% of the cash distributions from the partnership that owns
Washington Mutual Tower.

(H) The final phase of the Pruneyard complex, Pruneyard Place, 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 year ended December 31, 1999, the Company's share of earnings
and cash distributions from the partnership that owns Norwest Center was
74.4%.

(L) During 1998, through a series of transactions, the Company acquired
partnership interests with a stated interest of approximately 70.0% in the
partnerships that own Market Square. The Company's economic interest is
significantly larger since it has acquired the first mortgage note on the
Property in the amount of $181.0 million which earns interest at 9.75% and
will receive a priority distribution on its acquired capital base. In
addition, the Company acquired a "buffer loan", with accrued principal and
interest of $49.0 million at purchase, which accrues interest at a rate of
Prime plus 1.25% and is payable from cash flow, refinancing or sales
proceeds in excess of the first mortgage. During the year ended
December 31, 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.

(N) Janss Court is a seven-story Class A mixed-use building containing
approximately 126,000 square feet. In addition to approximately 93,000
square feet of retail and office space, Janss Court offers 32 apartments for
a total of 33,000 rentable square feet of residential space.

15
<PAGE>
(O) The Property is subject to a ground lease agreement. The agreement requires
annual payments of $115,000 through March 31, 2002 and $121,000 from
April 1, 2002 through March 31, 2007. The lease payment increases every ten
years thereafter according to a formula based on the Consumer Price Index.
The ground lease expires on March 31, 2041.

(P) On January 5, 1998, the Company purchased for approximately $5.5 million,
the remaining participation rights in the cash flow and residual value of
Tower 56 from the former participants for 307,692 shares of Common Stock. As
a result, all of the cash flow and the residual value of Tower 56 inures to
the Company.

(Q) Rentable square feet includes an adjustment for the interest of a joint
venture or minority partner. Calculations are based on the partners'
percentage interest in the cash flows of the Property.

None of the above Properties had either (i) net book values equal to 10.0%
or more of the Company's total assets as of December 31, 1999 or (ii) gross
revenues equal to 10.0% or more of the Company's consolidated gross revenues for
the year ended December 31, 1999.

16
<PAGE>
DEBT SCHEDULE

The following table sets forth certain information regarding the
consolidated debt obligations of the Company as of December 31, 1999 and 1998,
including mortgage obligations relating to the Properties. All of this debt,
with the exception of the Convertible Promissory Note due 2001, is nonrecourse
to the Company. However, notwithstanding the nonrecourse indebtedness, the
lender may have the right to recover deficiencies from the Company in certain
circumstances, including fraud, misappropriation of funds and environmental
liabilities (dollar amounts in thousands).

<TABLE>
<CAPTION>
PROPERTY AMORTIZATION INTEREST RATE (A) MATURITY DATE 12/31/99 12/31/98
- -------- ---------------- ----------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
FIXED RATE
- -------------------------------------
TransPotomac Plaza (B)............... Interest Only 7.28% Oct-2000 $ 65,000 $ 65,000
West Wilshire Office and Medical..... 25 year 6.90% Jan-2002 16,926 17,301
Searise Office Tower................. 25 year 6.90% Jan-2002 11,607 11,864
Exposition Centre.................... 25 year 6.90% May-2002 5,081 5,200
Wilshire Palisades................... 22 year 6.70% Jul-2002 29,047 29,902
110 Atrium Place..................... 30 year 6.90% Mar-2004 21,517 21,838
Interest only 7.47% Oct-2004 65,000 65,000
527 Madison Avenue and One Lincoln
Centre (B).........................
Sixty State Street................... 30 year 6.84% Jan-2005 85,420 87,627
Island Corporate Center.............. 30 year 6.90% Apr-2005 13,170 13,294
Washington Mutual Tower.............. Interest only 7.53% Nov-2005 79,100 79,100
Norwest Center....................... Interest only 8.74% Dec-2005 110,000 110,000
Agoura Hills......................... 25 year 6.90% Dec-2005 12,003 12,328
Janss Court.......................... 30 year 6.90% Dec-2005 18,357 18,723
Bayhill 4,5,6 & 7.................... 25 year 6.90% Dec-2006 57,764 59,071
Market Square (C) and 200 Galleria Interest only 7.54% Oct-2007 120,000 120,000
(B)................................
Corporate 500 Centre................. 25 year 6.66% Nov-2008 88,424 89,765
188 Embarcadero (D).................. 25 year 7.26% Aug-2009 15,606 9,135
Centerside II (D).................... 25 year 7.26% Aug-2009 24,254 13,818
700 North Brand (D).................. 25 year 7.26% Aug-2009 26,938 18,108
Golden Bear Center (D)............... 25 year 7.26% Aug-2009 20,477 15,753
Bixby Ranch (D)...................... 25 year 7.26% Aug-2009 28,528 20,243
One Memorial Drive (D)............... 25 year 7.26% Aug-2009 63,119 --
125 Summer Street (E)................ 25 year 7.23% Nov-2009 78,844 50,000
Tower 56 (E)......................... 25 year 7.23% Nov-2009 25,024 17,548
Peninsula Office Park 1,3,4,5,6,8 & 9 25 year 7.23% Nov-2009 88,128 60,242
(E)................................
Embarcadero Place (E)................ 25 year 7.23% Nov-2009 38,149 26,061
201 California Street (E)............ 25 year 7.23% Nov-2009 44,504 33,071
---------- ----------
Total Fixed Rate Debt................ 7.31%(F) 7.1 yrs(F) $1,251,987 $1,069,992
---------- ----------
VARIABLE RATE
Seaport Centre (G)................... Interest only LIBOR plus 1.50% Dec-2000 58,000 58,000
The Pruneyard........................ 24 year LIBOR plus 1.50% Jul-2000 60,947 49,384
Convertible Promissory Note due Interest only 8.11% max (I) Jan-2001 12,926 12,926
2001 (H)...........................
120 Montgomery Street................ 24 year LIBOR plus 1.40% Nov-2002 48,160 46,930
Norris Tech Center................... 25 year LIBOR plus 1.65% Dec-2003 16,066 16,392
Other loans.......................... Various Various Various 245 597
---------- ----------
Total Variable Rate Debt............. 7.40%(F) 1.5 yrs(F) $ 196,344 $ 184,229
---------- ----------
</TABLE>

17
<PAGE>

18301 Von Karman (J)................. -- -- -- -- 10,647
1600 South Main (J).................. -- -- -- -- 5,038
Biltmore Lakes (J)................... -- -- -- -- 11,468
Belmont Shores (J)................... -- -- -- -- 9,839
2677 North Main (J).................. -- -- -- -- 10,774
2700 Ygnacio Valley Road (J) -- -- -- -- 5,035
Westlake Spectrum (J)................ -- -- -- -- 3,993
Park Plaza (J)....................... -- -- -- -- 4,940
Warner Park Center (J)............... -- -- -- -- 5,213
429 Santa Monica (J) -- -- -- -- 10,176
Crossroads (J)....................... -- -- -- -- 7,339
Westlake Spectrum II (J)............. -- -- -- -- 5,284
Two ADP Plaza (K).................... -- -- -- -- 13,400
Two Corporate Centre (K)............. -- -- -- -- 18,600
One & Two Gateway (L)................ -- -- -- -- 8,679
Scottsdale Centre (L)................ -- -- -- -- 7,745
66 Bovet (L)......................... -- -- -- -- 3,939
One Norwest Center (M)............... -- -- -- -- 98,252
1300 South El Camino (L)............. -- -- -- -- 4,007
10 Almaden (N)....................... -- -- -- -- 33,885
---------- ----------
Total Repaid Debt.................... $ -- $ 278,253
---------- ----------
Total Cornerstone Debt before 7.32%(F) 6.4 yrs(F) $1,448,331 $1,532,474
adjustments........................
---------- ----------
Adjustments:
One Post (O)......................... 5 year 6.90% Dec-02 17,220 17,250
120 Montgomery (P)................... 4 year LIBOR plus 1.40% Nov-02 (16,037) (15,646)
Norwest Center (P)................... Interest only 8.74% Dec-05 (28,215) (24,310)
---------- ----------
Total Adjustment..................... $ (27,032) $ (22,706)
---------- ----------
Total Cornerstone Share of Debt...... 7.29%(F) 6.4 yrs(F) $1,421,299 $1,509,768
========== ==========
</TABLE>

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

(A) The interest rate is the stated interest rate (for Cornerstone originated
debt) or the prevailing market rate at the time of acquisition (for debt
assumed as part of an acquisition).

(B) The three notes arising from the acquisition of several properties from PGGM
are cross-collateralized, having the effect of forming a "collateral pool"
for the underlying notes.

(C) 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.

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

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

(F) Weighted-average interest rate and maturity of the Company's long-term debt.

(G) On December 15, 1999, through an extension and modification agreement, the
maturity date of the $58.0 million variable rate debt held on Seaport Centre
was extended from December 31, 1999 to December 31, 2000. All other terms of
the note remain unchanged.

(H) 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.

(I) Lesser of 30-day LIBOR plus 0.5% or 8.11%.

18
<PAGE>
(J) These 12 notes were prepaid as part of the Prudential Insurance Company of
America and Northwestern Mutual Life Insurance Company restructuring, see
note (D) above. All the notes had a mark to market interest rate of 6.9% and
maturity dates ranging from April 2000 to March 2003.

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

(L) These notes were prepaid in conjunction with the sale of these properties.

(M) The note was assumed by the purchaser as of the date of closing, in
conjunction with the sale of this property during the fourth quarter.

(N) This note was prepaid as part of the Northwestern Mutual Life Insurance
Company restructuring, see note (E) above. This note had a mark to market
interest rate of 6.9% and a maturity of April 2004.

(O) Amount relates to the Company's share of property debt as this Property is
accounted for under the equity method of accounting.

(P) Amounts relate to the joint venture or minority partners' portion of the
total debt. Calculations are based on the partners' 1999 percentage
participation in the cash flow of such Property.

The combined aggregate amount of maturities for all long-term borrowings for
2000 through 2004 are $183,947,000, $12,926,000, $110,821,000, $16,066,000 and
$86,517,000, respectively.

REVOLVING CREDIT FACILITY

The Company has a $550.0 million Revolving Credit Facility with a syndicate
of 17 banks led by Deutsche Bank, The Chase Manhattan Bank and Bank of America
for acquisitions and general working capital purposes as well as the issuance of
letters of credit (the "Revolving Credit Facility"). The interest rate on the
facility depends on the Company's ratio of total debt to asset value (as
defined) at the time of borrowing and will be at a spread of 1.10% to 1.40% over
the applicable LIBOR or Prime Rate at the borrower's option. The letters of
credit will be priced at the applicable Eurodollar credit spread. The Revolving
Credit Facility expires on November 3, 2001. As of December 31, 1999,
$329.0 million of the facility was outstanding at a rate of approximately 8.0%.
Of this amount, approximately $250.0 million is fixed with interest rate swaps,
which effectively fix the rate at 6.47%. Beginning January 2000, the rate will
be reduced to 5.41% through the expiration of the swaps in December 2000. 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 55.0%; (iii) the ratio of adjusted EBITDA to interest
expense may not be less than 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
temporarily increase its leverage from 55.0% to 60.0% in (ii) above for a short
period, which has since expired. The Company also increased its ability to enter
into mortgage debt under (v) above by decreasing the ratio required from 2.5 to
1.00 to 2.22 to 1.00.

19
<PAGE>
TENANTS

The Company's tenants include local, regional, national and international
companies engaged in a variety of businesses. The following table sets forth, as
of December 31, 1999, information concerning the ten largest tenants ranked by
their respective percentages of the Company's aggregate annualized rent.
Annualized rent is the monthly contractual base rent under existing leases as of
December 31, 1999, multiplied by 12.

<TABLE>
<CAPTION>
WEIGHTED
AVERAGE PERCENTAGE OF
REMAINING AGGREGATE PERCENTAGE OF
LEASE TERM PORTFOLIO AGGREGATE AGGREGATE
NUMBER OF IN MONTHS ANNUALIZED RENTABLE OCCUPIED
TENANT (A) BUILDINGS (B) RENT (C) SQUARE FEET SQUARE FEET
- ---------- --------- ---------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Norwest Corporation [Wells Fargo]............... 4 181 2.8% 795,424 4.6%
Massachusetts Financial Services................ 1 38 2.4% 328,540 1.9%
Hale & Dorr..................................... 1 162 2.4% 319,501 1.9%
Wachovia Bank................................... 1 108 2.2% 380,442 2.2%
King & Spalding................................. 1 109 2.0% 314,443 1.8%
The New England Life............................ 2 105 1.3% 216,978 1.3%
Perkins Coie.................................... 1 132 1.2% 240,127 1.4%
Houghton Mifflin................................ 1 86 1.1% 225,883 1.3%
PeopleSoft Corporation.......................... 1 105 1.0% 210,940 1.2%
McKesson HBOC, Inc. ............................ 1 157 0.6% 132,476 0.8%
---- ----- ---------- -----
TOTAL/WEIGHTED AVERAGE (B)...................... 123 17.0% 3,164,754 18.4%
==== ===== ========== =====
</TABLE>

(a) Actual tenant may be a subsidiary of, or an entity affiliated with, the
named tenant.

(b) Weighted Average calculation based on aggregate rentable square footage
occupied by each tenant.

ITEM 3. LEGAL PROCEEDINGS.

In the ordinary course of business, the Company is subject to tenant and
property related claims and other litigation. It is the opinion of management,
after consultation with outside counsel, that the resolution of these claims
will not have a material effect on the consolidated financial condition or
results of operations of the Company.

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

None.

20
<PAGE>
PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDERS MATTERS.

The shares of Common Stock of the Company are traded on the New York,
Frankfurt and Dusseldorf Stock Exchanges. Quotations of the Common Stock in New
York are made in United States Dollars. Quotations in Dusseldorf and Frankfurt
are shown in the following table, in Deutsche Marks. Current quotations in
Dusseldorf and Frankfurt are made in Euro. The high and low sales prices of the
Common Stock on the New York Stock Exchange for each quarter of 1999 and 1998
were as follows:

<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- -------- --------
<S> <C> <C>
1st Quarter......................................... $16.50 $14.25
2nd Quarter......................................... $16.94 $14.25
3rd Quarter......................................... $16.19 $15.13
4th Quarter......................................... $15.44 $13.06

<CAPTION>
1998
- ----
1st Quarter. $ 19.63 $ 17.25
<S> <C> <C>
2nd Quarter......................................... $18.38 $16.19
3rd Quarter......................................... $18.00 $13.38
4th Quarter......................................... $16.00 $14.06
</TABLE>

The high and low sales prices of the Common Stock on the Frankfurt Stock
Exchange for each quarter of 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- --------- ---------
<S> <C> <C>
1st Quarter.................................... DM27.97 DM24.25
2nd Quarter.................................... DM31.29 DM24.45
3rd Quarter.................................... DM30.71 DM26.40
4th Quarter.................................... DM28.36 DM24.45

<CAPTION>
1998
- ----
1st Quarter. DM35.00 DM31.50
<S> <C> <C>
2nd Quarter.................................... DM33.60 DM28.80
3rd Quarter.................................... DM32.00 DM23.00
4th Quarter.................................... DM26.80 DM23.00
</TABLE>

21
<PAGE>
The high and low sales prices of the Common Stock on the Dusseldorf Stock
Exchange for each quarter of 1999 and 1998 were as follows:

<TABLE>
<CAPTION>
1999 HIGH LOW
- ---- --------- ---------
<S> <C> <C>
1st Quarter.................................... DM27.44 DM24.50
2nd Quarter.................................... DM30.38 DM23.81
3rd Quarter.................................... DM30.18 DM26.85
4th Quarter.................................... DM28.62 DM24.30

<CAPTION>
1998
- ----
1st Quarter. DM35.00 DM31.50
<S> <C> <C>
2nd Quarter.................................... DM33.60 DM28.10
3rd Quarter.................................... DM32.20 DM23.50
4th Quarter.................................... DM26.10 DM23.00
</TABLE>

The closing quotation of the Company's common stock on March 22, 2000 was
U.S. 17.19 on the New York Stock Exchange, [EURO]17.60 on the Frankfurt Stock
Exchange and [EURO]17.40 on the Dusseldorf Stock Exchange.

As of March 22, 2000, there were approximately 200 holders of record of the
Common Stock.

For 1999, Cornerstone paid distributions to Common Stockholders and
Unitholders of $0.15 per share/unit on February 26, 1999 (to Common Stockholders
and Unitholders of record as of December 15, 1998); $0.15 per share/unit on
February 26, 1999 (to Common Stockholders and Unitholders of record as of
January 29, 1999); $0.30 per share/unit on May 28, 1999 (to Common Stockholders
and Unitholders of record as of April 30, 1999); $0.30 per share/unit on
August 31, 1999 (to Common Stockholders and Unitholders of record as of
July 30, 1999); and $0.30 per share/unit on November 30, 1999 (to Common
Stockholders and Unitholders of record as of October 29, 1999).

For 1998, Cornerstone paid distributions to its Common Stockholders and
Unitholders of $0.30 per share/unit on February 27, 1998 (to Common Stockholders
and Unitholders of record as of January 30, 1998); $0.30 per share/unit on
May 28, 1998 (to Common Stockholders and Unitholders of record as of April 30,
1998); $0.30 per share/unit on August 31, 1998 (to Common Stockholders and
Unitholders of record as of July 31, 1998); and $0.30 per share/unit on
November 30, 1998 (to Common Stockholders and Unitholders of record as of
October 30, 1998).

The Company intends to continue to pay cash distributions to its Common
Stockholders and Unitholders. It is expected that distributions will be made on
a quarterly basis in 2000 and, in accordance with the Company's qualification as
a REIT, will be equal to at least 95% of the Company's REIT taxable income
(excluding any net capital gains). The Company intends that at least 85% of all
distributions from income earned during any taxable year will be made prior to
the end of such taxable year. No assurance can be given as to the amounts of
future distributions since they are subject to the Company's FFO, earnings,
financial condition, and such other factors as the Board of Directors deem
relevant.

The merger agreement with EOP contains restrictive covenants on the payment
of distributions by Cornerstone other than a distribution of $0.20 per
share/unit payable on April 14, 2000, to holders of record on March 31, 2000,
and regular quarterly distributions thereafter of not more than $0.31 per share/
unit.

The Revolving Credit Facility contains certain restrictive covenants
including a limitation on the Company's dividend to 90.0% of FFO and 110.0% of
funds available for distribution, both as defined in the agreement.

22
<PAGE>
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 and August 31, 1999, through a dividend reinvestment plan,
the Company issued 76,603, and 70,974 shares, respectively, of Common Stock and
received proceeds of approximately $1,230,000 and $1,088,000, respectively. The
dividend reinvestment plan was suspended effective as of September 30, 1999.

On July 30, 1999, as a result of the redemption of UPREIT Units on a
one-for-one basis, the Company issued an additional 562,588 shares of Common
Stock.

On August 3, 1999, as a result of the redemption of UPREIT Units on a
one-for-one basis, the Company issued an additional 562,587 shares of Common
Stock.

On August 17, 1999, the Company reacquired 10,833 shares of restricted
Common Stock as a result of the forfeiture of these shares by a certain employee
of the Company.

On September 9, 1999, 76,647 UPREIT Units were redeemed for cash of
approximately $1.2 million.

On December 9, 1999, the Company's Board of Directors approved the
Repurchase Program under which the Company is permitted to purchase up to
$100.0 million of the Company's outstanding Common Stock. The Board authorized
periodic purchases on or prior to December 31, 2000 using available working
capital, either on the open market at prevailing prices or in privately
negotiated transactions. As of December 31, 1999, the Company had repurchased
347,400 shares of its outstanding Common Stock for an aggregate cost of
approximately $4.9 million. The Repurchase Program has been discontinued as a
result of the pending merger with EOP.

On January 10, 2000, 34,201 UPREIT Units were redeemed for cash of
approximately $0.5 million.

On January 21, 2000, the Operating Partnership issued a total of 115,869
UPREIT Units to certain persons (including certain executive officers) in
connection with the acquisition 400 Capitol Mall in Sacramento, California. See
"Item 1. Business--Recent Developments-400 Capitol Mall Acquisition." Such
securities were not registered under the Securities Act of 1933, as amended (the
"Securities Act") and were issued in an exempt transaction pursuant to
Section 4(2) of the Securities Act.

On March 8, 2000, as a result of the redemption of UPREIT Units on a
one-for-one basis, the Company issued an additional 9,200 shares of Common
Stock.

23
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA.

The selected financial data has been derived from, and should be read in
conjunction with the related audited consolidated financial statements.

<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- ---------
(In thousands, except per share amounts)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Real estate investments before accumulated
depreciation................................ $3,951,465 $4,262,136 $1,947,272 $799,662 $ 706,988
Total assets.................................. 4,170,228 4,281,984 2,051,481 766,180 586,089
Long-term debt................................ 1,448,331 1,532,474 706,178 400,142 369,600
Credit facility............................... 329,000 465,000 187,000 -- --
Total liabilities............................. 1,890,636 2,138,309 940,062 442,375 403,927
Redeemable preferred stock.................... $ -- $ -- $ -- $162,743 $ --

OPERATING DATA:
Revenues...................................... $ 617,448 $ 359,486 $ 173,911 $116,908 $ 92,387
Expenses...................................... 465,675 262,173 134,041 106,646 90,427
Gain (loss) on sale of real estate assets..... 131,034 (2,076) -- -- --
Minority interest............................. 40,737 7,469 2,368 1,519 3,417
Gain (loss) on interest rate swap............. -- -- 99 4,278 (7,672)
Cumulative effect of a change in accounting
principle................................... (630) -- -- -- --
Extraordinary loss............................ 10,787 4,303 54 3,925 4,445
Net income (loss)............................. $ 230,653 $ 83,465 $ 37,547 $ 9,096 $ (13,574)
Net income per common share, Basic............ $ 1.76 $ 0.80 $ 0.63 $ 0.19 $ (0.94)
Net income per common share, Diluted.......... $ 1.74 $ 0.80 $ 0.63 $ 0.19 $ (0.94)
Dividends declared per common share........... $ 0.90 $ 1.50 $ 1.04 $ 1.20 $ 1.16

OTHER DATA:
Cash Flow from:
Operations.................................. $ 223,505 $ 182,797 $ 65,922 $ 34,522 $ 20,036
Investing................................... 52,488 (823,082) (462,837) (57,259) (135,527)
Financing................................... (318,183) 677,424 306,842 129,800 110,725
Funds From Operations (1)................... $ 242,426 $ 155,915 $ 68,308 $ 34,719 $ 21,424
</TABLE>

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

(1) FFO is a calculation which is defined by the National Association of Real
Estate Investment Trusts ("NAREIT") and is not indicative of either net
income or cash flow from operations as calculated in accordance with GAAP as
a measure of performance or liquidity. As disclosed in ITEM 7 of this
Form 10-K, the Company makes certain additional adjustments to FFO which are
not contemplated in the NAREIT definition.

See ITEM 7 below for a discussion of the selected financial data.

24
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

The following discussion should be read in conjunction with the Selected
Consolidated Financial Data set forth above and the Consolidated Financial
Statements and Notes included herein.

When used in the following discussion, the words "believes", "anticipates",
and similar expressions are intended to identify "forward-looking statements".
Such statements are subject to certain risks and uncertainties, which could
cause actual results to differ materially from those projected. Readers are
cautioned not to place undue reliance on these "forward-looking statements",
which speak only as of the date hereof. The Company undertakes no obligation to
publicly release the result of any revisions of these "forward-looking
statements", which may be made to reflect events or circumstances after the date
hereof or to reflect the occurrence of unanticipated events.

RESULTS OF OPERATIONS

Cornerstone's principal source of income is rental revenues received through
its investment in 76 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 not or, in the case of One
Post, does not have sufficient control of the day-to-day operations of the
investment.

PROPERTY RESULTS. For the years ended December 31, 1999, 1998, and 1997
property results can be summarized as follows (in thousands):

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Office and Parking Rentals................... $607,409 $338,515 $159,828
Less:
Building Operating Expenses................ 132,630 75,663 35,962
Real Estate Taxes.......................... 71,554 46,760 25,560
Depreciation and Amortization.............. 96,726 59,278 30,978
-------- -------- --------
Total Operating Expenses..................... 300,910 181,701 92,500
-------- -------- --------
Total Property Income........................ $306,499 $156,814 $ 67,328
======== ======== ========
</TABLE>

The increase in property income from 1998 to 1999 of $149.7 million was due
to a net increase of $120.5 million derived from the interests in 69 properties
acquired as part of the Wilson Acquisition on December 16, 1998 (the Company has
since sold eleven of these properties); an increase of $14.1 million from Market
Square which was consolidated starting November 1998; an increase of
$9.2 million from four properties acquired during 1998 (Wilshire Palisades,
$2.0 million; One Memorial Drive, $2.6 million; 201 California Street,
$1.4 million; and Corporate 500 Centre, $3.2 million); and a net increase of
$9.0 million related to the properties held during both periods resulting
primarily from increased leasing activity, increased rental rates and a
reduction in depreciation due to fully depreciated leasing costs as well as the
discontinued recording of depreciation on properties held for sale. These
increases were offset by a

25
<PAGE>
$1.4 million decrease due to asset sales during 1999 and 1998 and a
$1.7 million decrease at 125 Summer Street due to a large vacant space for a
portion of 1999.

The increase in property income from 1997 to 1998 of $89.5 million was due
in part to the additional property income of $54.8 million derived from the DIHC
Portfolio, which was acquired in October 1997. The five single property
acquisitions during 1998 and the Wilson Acquisition, which occurred in
December 1998, added $29.0 million and $4.3 million, respectively of additional
property income. At the properties held during both periods, property income at
Norwest Center increased $0.2 million due to an increase in net rental income.
Property income at Washington Mutual Tower increased $1.6 million due to higher
office rental revenue of $1.2 million, an increase in net parking rental income
of $0.2 million, a decrease of $0.1 million in real estate tax expense, a
decrease of $0.7 million in depreciation and amortization expense offset by a
decrease of $0.4 million in expense recovery income and an increase of
$0.2 million in building operating expenses. Property income at 125 Summer
Street increased $0.6 million due to increased rental rates and the lease up of
the former Gadsby and Hannah space which was vacant during the same period in
1997. Property income at 527 Madison Avenue increased $0.9 million mainly
because its 1997 results reflected only the period after it was purchased in
February 1997. These increases were offset by a reduction in property income of
$1.3 million at the Frick Building which was due to the sale of this building in
April 1998 and an increase of $0.6 million of depreciation and amortization on
acquisition costs.

EARNINGS IN JOINT VENTURES.

The earnings in joint ventures of approximately $0.9 million in 1999 is
comprised of the Company's investments in One Post and WCP Services, Inc., both
of which were acquired as part of the Wilson Acquisition.

The earnings in joint ventures of approximately $11.4 million in 1998 was
mainly due to the acquisition of the partnership interest in Market Square in
January 1998. The investment in Market Square was accounted for under the equity
method of accounting from February 1998 through October 1998 due to the lack of
sufficient control of the day-to-day operations of the investment. In
November 1998, the Company gained sufficient control of the investment and began
consolidating this investment. The amount attributable to Market Square of
$11.3 million is comprised of approximately $17.1 million of interest earned on
the loans which was offset by an equity in loss of approximately $5.8 million.
The remaining $0.1 million of earnings in joint ventures is comprised of equity
earnings from the Company's investments in One Post and WCP Services, Inc.

INTEREST AND OTHER INCOME.

Interest and other income was $9.1 million in 1999, $9.6 million in 1998 and
$14.1 million in 1997. These amounts primarily consist of interest earned from
short-term investments, tenant alteration income in 1998, lease cancellation
income, interest earned on a mortgage note receivable in 1998, a note receivable
from a partner, management fee income and income from advisory contracts in
1997.

The 1999 decrease in interest and other income of $0.5 million from 1998 is
due to a $2.1 million decrease in interest income from the mortgage loan and
"buffer loan" on Market Square, a $2.6 million decrease in tenant alteration
income and a $0.3 million decrease in lease cancellation income. These decreases
were offset by a $1.4 million increase in other income, a $1.2 million increase
in management fee income and a $1.9 million increase in interest earned from
short-term investments.

The 1998 decrease in interest and other income of $4.5 million from 1997 is
due to a reduction in interest income of $5.6 million on short-term investments
due to the Company having excess cash in 1997 from its Preferred Stock placement
that occurred in November 1996 as well as its IPO in April 1997. Also adding to
the decrease was a reduction of $1.6 million of interest income on the mortgage
note on Market Square due to two and a half months of interest in 1997 versus
one month in 1998. In addition, a reduction

26
<PAGE>
of $0.9 million due to the expiration of certain advisory contracts in 1997, a
reduction of $0.1 million in interest received from the note receivable from a
partner due to the reduction in principal and a reduction of $0.2 million in
lease cancellation income further added to the decrease. These amounts were
offset by an increase of $2.5 million in tenant alteration income, a
$0.9 million increase in management fee income and an increase of $0.5 million
in other income.

INTEREST EXPENSE.

Interest expense incurred by Cornerstone was $137.8 million, $67.5 million
and $34.0 million for 1999, 1998, and 1997, respectively.

The increase in 1999 from 1998 of approximately $70.3 million is due to an
increase of $40.5 million from the property mortgages assumed as part of the
Wilson Acquisition; an increase of $23.9 million on the Revolving Credit
Facility due to increased borrowings; a $2.4 million increase in interest
expense related to One Memorial Drive, which is included in the new
$180.0 million loan that was completed in June 1999 (see "Mortgage Indebtedness"
below); an increase of $0.8 million on the Corporate 500 Centre loan due mainly
to the Property being acquired on January 28, 1998; an increase of $1.9 million
on the 201 California Street and Wilshire Palisades loans mainly due to these
properties being acquired on June 3, 1998; an increase of $0.6 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 an
increase of $0.7 million in interest expense related to 125 Summer Street and
Tower 56, which were included in the new $275.0 million loan that was completed
in October 1999 (see "Mortgage Indebtedness" below). These increases were offset
by a $0.6 million decrease in interest on the One Norwest Center loan due to the
refinancing of this loan in September 1998, as well as the sale of this property
in December 1999 and a $0.1 million decrease in interest on the Sixty State
Street loan.

The increase in 1998 from 1997 of approximately $33.5 million is due to an
increase of $15.2 million in interest expense on the purchase money loans from
PGGM as a result of a full year's expense in 1998 versus two and a half months
in 1997, an increase of approximately $2.7 million of interest expense on the
Revolving Credit Facility due to increased borrowings under the facility, an
increase of $0.6 million in amortization of deferred costs and an increase in
interest expense due to the following loans that were originated or assumed
during 1998: Sixty State Street ($6.1 million), Corporate 500 Centre
($5.1 million), 201 California Street ($1.3 million), Wilshire Palisades
($1.2 million) and loans assumed as part of the Wilson Acquisition
($2.0 million). These increases were offset by a decrease of $0.4 million in
Term Loan interest and a decrease of $0.3 million due to the 1998 refinancing of
the One Norwest Center loan, both as discussed below.

GENERAL AND ADMINISTRATIVE EXPENSES.

The aggregate amount of Cornerstone's general and administrative expenses
increased to $27.0 million in 1999 from $12.9 million in 1998 and $7.6 million
in 1997. The increase of $14.1 million in 1999 from 1998 and the increase of
$5.3 million in 1998 from 1997 is due mainly to the additional employees, space,
systems and other support necessary to manage the substantial growth in assets
of the Company during the most recent twenty-seven month period.

GAIN (LOSS) ON SALE OF REAL ESTATE ASSETS.

During 1999, the Company sold its interest in 13 office properties for gross
proceeds of $495.7 million, comprising approximately 3.0 million rentable square
feet in Charlotte, Denver, Phoenix (four properties), the San Francisco Bay Area
(six properties) and Southern California, resulting in a gain of approximately
$131.0 million.

27
<PAGE>
On March 31, 1998, the Company sold the Dearborn Land (an undeveloped parcel
of land in Chicago that was acquired as part of the acquisition of the PGGM
Portfolio in October 1997) for gross proceeds of approximately $19.0 million,
resulting in a loss of approximately $0.2 million.

On April 29, 1998, the Company sold the Frick Building, located in
Pittsburgh, Pennsylvania, for gross proceeds of approximately $26.7 million,
resulting in a loss of approximately $2.1 million.

On December 29, 1998, Market Square sold a condominium unit located in
Washington D.C., for gross proceeds of approximately $0.3 million, resulting in
a gain of approximately $0.2 million.

MINORITY INTEREST IN OPERATING PARTNERSHIP.

The increase in minority interest in operating partnership from 1998 to 1999
of $32.1 million is due to the increase in unitholders and increased income
offset slightly by the minority unitholders share of the partnership decreasing
from 13.7% to 12.9%.

The increase in minority interest in operating partnership from 1997 to 1998
of $2.9 million is due to the minority unitholders share of the partnership
increasing from 0% to 13.7%.

MINORITY INTEREST IN JOINT VENTURES.

The increase in minority interest in joint ventures from 1998 to 1999 of
$1.2 million is due to the change in the components of the joint venture
properties, as well as the increased income at the joint venture properties
which affects the allocation of minority interest to the Company's joint venture
partners.

The increase in minority interest in joint ventures from 1997 to 1998 of
$2.2 million is primarily due to the increased income at the joint venture
properties which affects the allocation of minority interest to the Company's
joint venture partners.

LIQUIDITY AND CAPITAL RESOURCES

CASH FLOW (DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
FOR THE YEAR ENDED FOR THE YEAR ENDED FOR THE YEAR ENDED
DECEMBER 31, 1999 DECEMBER 31, 1998 DECEMBER 31, 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Cash flow provided by (used in):
Operating activities......................... $223,505 $182,797 $ 65,922
Investing activities......................... 52,488 (823,082) (462,837)
Financing activities......................... (318,183) 677,424 306,842
Earnings to fixed charges ratio.............. 2.58 2.02 1.62
</TABLE>

YEAR ENDED DECEMBER 31, 1999 COMPARED TO YEAR ENDED DECEMBER 31, 1998

Cash provided by operating activities increased to approximately
$223.5 million for 1999 from $182.8 million for 1998. The increase is primarily
due to the cash flows from the interests in 69 properties acquired in the Wilson
Acquisition. The Company has since sold eleven of these assets.

Cash provided by investing activities was approximately $52.5 million for
1999 whereas $823.1 million was used for 1998. The net increase in cash provided
by investing activities of $875.6 million is primarily due to the following:
during 1998 the Company purchased Corporate 500 Centre for $135.0 million, One
Memorial Drive for $23.5 million, 201 California Street and Wilshire Palisades
for $29.5 million, and the Properties acquired in the Wilson Acquisition for
$465.0 million; during 1998, the Company incurred an additional $144.2 million
in additions to existing properties whereas the Company incurred $79.3 million
in additions to existing properties for the same period in 1999; and during
1999, the Company sold thirteen Properties for proceeds net of escrow amounts of
$136.7 million whereas the Company sold two real estate investments for proceeds
of $45.9 million during the same period in 1998. Further adding to the increase
was the net change in investments in real estate joint ventures of approximately
$31.4 million and a decrease in other investments of $36.9 million during 1999.
These amounts were offset by a decrease of $1.4 in the repayment of a notes
receivable from a related party (the note was paid off in January 1999).

28
<PAGE>
Cash used in financing activities was $318.2 million during 1999, whereas
$677.4 million of cash was provided by financing activities for 1998. The net
increase in cash used in financing activities of $995.6 million is due to the
following: a decrease in the amount received from common stock offerings of
$462.3 million (the Company had a secondary offering in February 1998 of
approximately $262.3 million and an additional stock purchase by PGGM of
$200.0 million whereas there were no stock offerings during 1999); an increase
in the costs associated with the Repurchase Program of approximately
$4.9 million in 1999; a decrease in borrowings under the credit facility of
$437.5 million; an increase in repayments under mortgage loans of
$429.6 million; a decrease in proceeds received from the dividend reinvestment
plan of $4.4 million; an increase of $13.1 million in debt prepayment costs; an
increase of $1.2 million in unitholder redemptions; and an increase in
distributions to minority partners and common stockholders of $15.6 million and
$37.7 million, respectively. These increases were offset by the following: an
increase of $362.6 million in borrowings under mortgage loans; a decrease of
$23.5 million in repayments under the credit facility; a $4.7 million increase
in restricted cash; a decrease of $18.0 million in stock and debt issuance
costs; and an increase of $1.8 million in option exercise proceeds.

The ratio of earnings to fixed charges and dividends on preferred stock
increased to 2.58 at December 31, 1999 from 2.02 at December 31, 1998, due
mainly to the net gain on real estate assets during 1999.

YEAR ENDED DECEMBER 31, 1998 COMPARED TO YEAR ENDED DECEMBER 31, 1997

Cash provided by operating activities increased to approximately
$182.8 million for 1998 from approximately $65.9 million for 1997. The increase
is primarily due to the cash flows from the interests in 87 properties acquired
since the end of the third quarter of 1997.

Cash used in investing activities increased to approximately $823.1 million
for 1998 from approximately $462.8 million for 1997 due mainly to the following
acquisitions for approximately $653.0 million (net of any shares or units issued
and debt assumed): Corporate 500 Centre; One Memorial Drive; 201 California
Street and Wilshire Palisades; Market Square; and the Wilson Acquisition. In
addition, the Company incurred an additional $144.2 million in additions to
existing properties as well as an additional $41.9 million in additions to other
investments. Further adding to the increase is the Company's net investment in
real estate joint ventures of approximately $31.4 million. These investments
were partially offset by the approximate $18.8 million, approximate
$26.7 million and approximate $0.3 million in proceeds from the sale of the
Dearborn Land, the Frick Building and the Market Square condominium,
respectively. In addition, these investments were partially offset by the
receipt of approximately $1.5 million from the repayment of notes receivable.
During 1997, the Company invested approximately $67.0 million in 527 Madison
Avenue, approximately $260.0 million in the DIHC Portfolio, approximately
$131.5 million in Sixty State Street and approximately $5.6 million in other
property investments. These investments were slightly offset by the receipt of
approximately $1.3 million from the repayment of notes receivable.

Cash provided by financing activities increased to approximately
$677.4 million for 1998 from approximately $306.8 million for 1997. The increase
was mainly due to the proceeds from the Company's public offering of Common
Stock in February 1998 of approximately $262.3 million and the additional stock
purchase by PGGM of $200.0 million compared to approximately $225.4 million
received from the Company's IPO in 1997, an increase in mortgage borrowings of
approximately $92.4 million and an increase in Revolving Credit Facility
borrowings versus Revolving Credit Facility repayments of approximately
$91.0 million. Further adding to the increase was a decrease in loan repayments
of approximately $30.2 million and a decrease in preferred distributions of
approximately $6.7 million. These amounts were offset by a decrease of
approximately $4.4 million in proceeds from the dividend reinvestment plan, an
increase in net swap termination and debt prepayment costs of approximately
$1.6 million, an increase in restricted cash of approximately $9.7 million, an
increase of approximately $0.1 million in stock and debt

29
<PAGE>
issuance costs, an increase in distributions to minority partners of
approximately $9.8 million and an increase in distributions to common
stockholders paid of approximately $61.0 million.

The ratio of earnings to fixed charges and dividends on preferred stock
increased to 2.02 times at December 31, 1998 from 1.62 times at December 31,
1997 due to the conversion of the Cumulative Convertible Preferred Stock into
approximately 11,300,000 shares of Common Stock in July 1997.

CAPITAL STOCK TRANSACTIONS

On January 31, 1997, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $3.7 million and issued an additional 243,907
shares of Common Stock to stockholders.

On April 21, 1997, the Company received $225.4 million in gross proceeds
from the public offering of 16,100,000 new shares of Common Stock at a price of
$14.00 per share and listed on the New York Stock Exchange through underwriters
led by Merrill Lynch & Co. The net proceeds were used as partial consideration
for the purchase of the PGGM Portfolio.

On April 30, 1997, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $2.2 million and issued an additional 141,733
shares of Common Stock to stockholders.

On July 31, 1997, through a dividend reinvestment plan, Cornerstone received
proceeds of approximately $2.6 million and issued an additional 175,796 shares
of Common Stock to stockholders.

On October 27, 1997, the Company increased the authorized shares from
115,000,000 shares of capital stock, without par value, to 265,000,00 shares of
capital stock, without par value, of which 15,000,000 shares are Preferred Stock
and 250,000,000 shares are Common Stock.

On October 27, 1997, as consideration for the acquisition of the PGGM
Portfolio, Cornerstone issued 34,185,500 shares of Common Stock to PGGM as
compensation for the acquisition of interests in nine Class A office buildings
and an undeveloped parcel of land.

On October 31, 1997, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $2.5 million and issued an additional 134,577
shares of Common Stock to stockholders.

On January 5, 1998, the Company purchased for approximately $5.5 million the
participation rights in the cash flow and residual value of Tower 56 from the
former participants for 307,692 shares of Common Stock.

On February 6, 1998, Cornerstone completed a secondary public offering of
14,375,000 shares of Common Stock at $18.25 per share. The shares were placed in
the U.S. through a syndicate of seven investment banks led by Merrill Lynch &
Co. Net proceeds to the Company were approximately $247.9 million (approximately
$262.3 million in gross proceeds less an underwriting discount of approximately
$13.7 million and expenses of approximately $0.7 million). The net proceeds were
used to repay outstanding borrowings under the Revolving Credit Facility and for
working capital purposes.

On February 27, 1998, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $2.0 million and issued an additional 109,007
shares of Common Stock to stockholders.

On April 28, 1998, the Company issued 3,428,571 shares of Common Stock to
the Prudential Insurance Company of America ("Prudential") and 1,657,426 UPREIT
Units to certain other persons as partial consideration for the acquisition of
One Memorial Drive. Such securities were not registered under the Securities Act
of 1933, as amended (the "Securities Act") and were issued in an exempt
transaction pursuant to Section 4(2) of the Securities Act. The Company has
filed a Registration Statement on Form S-3 (No. 333-59259) to register under the
Securities Act the resale by Prudential of such shares of Common Stock.

30
<PAGE>
On May 20, 1998, the Company increased the number of authorized Preferred
Stock from 15,000,000 shares to 65,000,000 shares.

On May 29, 1998, through a dividend reinvestment plan, Cornerstone received
proceeds of approximately $1.8 million and issued an additional 98,487 shares of
Common Stock to stockholders.

On June 3, 1998, the Operating Partnership issued a total of 1,665,663
UPREIT Units to certain persons in connection with the acquisition of 201
California Street and the Wilshire Palisades building. Such securities were not
registered under the Securities Act and were issued in an exempt transaction
pursuant to Section 4(2) of the Securities Act.

On August 31, 1998, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $1.5 million and issued an additional 94,610
shares of Common Stock to stockholders.

On November 30, 1998, through a dividend reinvestment plan, Cornerstone
received proceeds of approximately $1.5 million and issued an additional 95,300
shares of Common Stock to stockholders.

On December 16, 1998, as part of the consideration paid by the Company in
connection with the Wilson Acquisition, the Company issued 14,884,417 shares of
Common Stock and the Operating Partnership issued 16,187,724 UPREIT Units to the
former owners of WW&A and the Wilson Properties. Such securities were not
registered under the Securities Act and were offered and sold in a private
offering pursuant to Section 4(2) of the Securities Act and Regulation D
promulgated thereunder. The Company has filed a Registration Statement on
Form S-3 (No. 333-72449) to register under the Securities Act the resale by the
holders thereof of the 14,884,417 shares of Common Stock issued in connection
with the Wilson Acquisition and 16,187,724 shares of Common Stock issuable upon
redemption of the UPREIT Units issued in connection with the Wilson Acquisition.

On December 16, 1998, in connection with the Wilson Acquisition, the Company
issued 11,594,203 shares of Common Stock to PGGM. Such shares were not
registered under the Securities Act and were offered and sold to PGGM in a
private offering pursuant to Section 4(2) of the Securities Act.

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.

On July 30, 1999, as a result of the redemption of UPREIT Units on a
one-for-one basis, the Company issued an additional 562,588 shares of Common
Stock.

On August 3, 1999, as a result of the redemption of UPREIT Units on a
one-for-one basis, the Company issued an additional 562,587 shares of Common
Stock.

On August 17, 1999, the Company reacquired 10,833 shares of restricted
Common Stock as a result of the forfeiture of these shares by a certain employee
of the Company.

On August 31, 1999, through a dividend reinvestment plan, the Company
received proceeds of approximately $1.1 million and issued an additional 70,974
shares of Common Stock.

During December 1999, the Company repurchased 347,400 shares of its
outstanding Common Stock for an aggregate cost of approximately $4.9 million
through its Repurchase Program. See "Item 1. Business--Recent
Developments--Stock Repurchase Program."

31
<PAGE>
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 or loss (computed in accordance with GAAP), excluding
gains or losses from debt restructuring and sales of properties, plus real
estate related depreciation and amortization and after adjustments for
unconsolidated joint ventures. The Company has adjusted 1997 FFO by the net gain
on interest rate swaps due to the non-cash nature of this item.

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

The Company believes that FFO is helpful to investors as a measure of the
performance of an equity REIT because, along with cash flows from operating
activities, financing activities and investing activities, it provides investors
an understanding of the ability of the Company to generate earnings from its
recurring operations, after the payment of all administrative costs and interest
expense. For cash flows from operating, financing, and investing activities in
accordance with GAAP see the Consolidated Statements of Cash Flows included in
the Consolidated Financial Statements which are part of this report.

Included in FFO for 1999, 1998, and 1997 is approximately $25.3 million,
$14.5 million and $2.7 million, respectively, for free and deferred rental
income (after adjustment for minority interest).

The table below sets forth the adjustments which were made to the net income
of the Company in the calculation of FFO for the last three years (amounts in
thousands):

<TABLE>
<CAPTION>
FUNDS FROM OPERATIONS (1)
------------------------------
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income.................................................. $230,653 $ 83,465 $37,547
NAREIT adjustments:
Depreciation and amortization (2)......................... 96,726 59,278 30,978
Minority adjustments...................................... (2,686) (2,120) (1,551)
Unconsolidated depreciation (3)........................... 1,507 4,054 --
Cumulative Effect of a Change in Accounting Principle..... 630 -- --
Realized/unrealized gain.................................. -- -- (99)
(Gain) Loss on sale of Assets............................. (131,034) 2,076 --
Extraordinary loss........................................ 10,787 4,303 54
Other adjustments:
Amortization on rent notes................................ -- 1,531 1,379
Severance payments........................................ 861 478 --
Minority interest allocated to unitholders................ 34,982 2,850 --
-------- -------- -------
FUNDS FROM OPERATIONS....................................... 242,426 155,915 68,308
-------- -------- -------
Interest Expense on Convertible Note........................ 745 790 792
-------- -------- -------
FUNDS FROM OPERATIONS (ADJUSTED FOR CONVERTIBLE DEBT)....... $243,171 $156,705 $69,100
======== ======== =======
</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.

32
<PAGE>
(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 years ended December 31, 1999
and 1998, depreciation and amortization includes $3,959,000 and $170,000,
respectively, of amortization relating to the intangible management and
development company assets that were acquired as part of the Wilson
Acquisition.

(3) For the years ended December 31, 1999 and 1998, the unconsolidated
depreciation adjustment includes $678,000 and $170,000, 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 from 1998 to 1999 of approximately $86.5 million is
primarily due to the full year of operations of the 69 properties acquired as
part of the Wilson Acquisition (eleven of these assets have since been sold), as
well as the four additional properties acquired during 1998.

The increase in FFO from 1997 to 1998 of approximately $87.6 million is due
to the $45.9 million increase in net income due to the following changes
described in the captions above in more detail: an increase in total property
income of $89.5 million and an increase in earnings in joint ventures of
$11.4 million; these amounts are partially offset by a decrease in interest and
other income of $4.5 million; an increase in interest expense of $33.5 million;
an increase in general and administrative expenses of $5.4 million; an increase
in gain (loss) on sale of real estate assets of $2.1 million; an increase in
minority interest of $5.1 million; a decrease in net gain on interest rate swaps
of $0.1 million; and an increase in extraordinary loss of $4.3 million.

The following factors also contributed to the increase in FFO: a
$28.3 million increase in depreciation and amortization due to new property
acquisitions, plus a $4.1 million increase in unconsolidated depreciation, plus
a $0.1 million reduction in realized/unrealized gain on interest rate swaps,
plus a $2.1 million increase in gain (loss) on sale of real estate assets, plus
a $4.2 million increase in extraordinary loss, plus a $0.6 million increase in
amortization on rent notes and severance payments and a $2.9 million increase in
minority interest allocated to unitholders. These amounts are partially offset
by the $0.6 million decrease in minority interest adjustments.

MORTGAGE INDEBTEDNESS

As protection against market interest rates rising prior to the maturity of
the Interest-Bearing Notes, on September 29, 1993, Cornerstone entered into a
forward interest rate swap agreement with Deutsche Bank AG. The interest rate
swap agreement was revised as part of the refinancing of One Norwest Center. The
forward interest rate swap agreement was for a fixed rate of 7.14% on a notional
amount of $92.8 million for a period of five years beginning July 1, 2001.
Effective January 16, 1997, this forward swap was terminated.

On October 27, 1997, the Company entered into three mortgage loans with PGGM
as purchase money financing for the PGGM Portfolio. The mortgages, which are
cross-collateralized, encumber TransPotomac Plaza 5, 527 Madison Avenue, One
Lincoln Centre, 200 Galleria and the first mortgage note on Market Square. These
mortgages total $250.0 million and are interest only with no prepayment rights.
The first loan has a $65.0 million principal balance, bears interest at a rate
of 7.28% and matures in October 2000. Upon repayment of this loan, PGGM will
release the lien on TransPotomac Plaza 5. The second loan has a $65.0 million
principal balance, bears interest at a rate of 7.47% and matures in
October 2004. Upon repayment of this loan, PGGM will release the liens on 527
Madison Avenue and One Lincoln Centre. The third loan has a $120.0 million
principal balance, bears interest at a rate of 7.54% and matures in
October 2007. Upon repayment of this loan, PGGM will release the liens on 200
Galleria and Market Square.

On December 31, 1997, the Company purchased the second mortgage on Sixty
State Street in Boston, Massachusetts. The property has a first mortgage in the
amount of approximately $78.4 million, which

33
<PAGE>
matures in January 2005. The loan requires amortization based on a 30-year
schedule and bears interest at a rate of 9.5%. While the face amount of the
first mortgage is $77.9 million, and the interest rate is 9.5%, the Company is
carrying the debt at $85.4 million, which is the market value of the loan at the
time of the closing, less the amortization of principal and premium since
closing, based upon a market interest rate for similar quality loans of 6.84%.

On January 28, 1998, the Company entered into an $80.0 million first
mortgage on Corporate 500 Centre with Bankers Trust Company. The loan bears
interest at a rate of LIBOR plus 1.0% and matures in July 2002. The Company had
entered into a $80.0 million interest rate swap to protect it from interest rate
fluctuations that could have affected its floating rate debt on Corporate 500
Centre. The swap effectively fixed the interest rate on the $80.0 million loan
at 6.63%. This agreement was terminated in August 1998 at no cost to the
Company. On October 9, 1998, the Company completed the refinancing of the
$80.0 million mortgage on Corporate 500 Centre with Teachers Insurance and
Annuity Association. As a result of the refinancing, the principal balance was
increased to $90.0 million, the term of the loan was extended from 4.5 years to
10 years and the interest rate was increased by three basis points to 6.66%.

On June 3, 1998, the Company assumed the mortgage on 201 California Street
in San Francisco, California. The loan required amortization based on a 30-year
schedule and bore interest at a rate of 6.9%. This mortgage was restructured as
part of the Northwestern Mutual Life Insurance Company restructuring on
October 6, 1999 (see below).

On June 3, 1998, the Company assumed the mortgage on Wilshire Palisades in
Santa Monica, California. The loan requires amortization based on a 22-year
schedule and bears interest at a rate of 8.04%. While the face amount of the
loan is $28.8 million, and the interest rate is 8.04%, the Company is carrying
the debt at $29.0 million, which is the market value of the loan at the time of
the closing, less the amortization of principal and premium since closing, based
upon a market interest rate for similar quality loans of 6.7%.

On September 25, 1998, the Company completed the refinancing of the
$96.1 million mortgage on One Norwest Center with the Connecticut General Life
Insurance Company ("CIGNA") and the Massachusetts Mutual Life Insurance Company
("Mass Mutual"). As a result of the refinancing, the principal balance was
increased to $98.5 million, the term of the loan was extended from three years
to ten years and the interest rate was reduced from 7.50% to 6.90%. In
conjunction with the sale of this property during the fourth quarter of 1999,
the mortgage was assumed by the purchaser at closing.

On December 16, 1998, the Company assumed various mortgages totaling
approximately $760.0 million as part of the Wilson Acquisition. The loans have
various amortization periods and interest rates. Certain assumed loans were
prepaid subsequent to the closing but prior to year end.

During June 1999, the Company restructured approximately $163.0 million of
property-related debt with Prudential Insurance Company 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 term 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.

On October 6, 1999, the Company restructured approximately $219.9 million of
individual property-related debt with Northwestern Mutual Life Insurance
Company. The restructuring involved retiring the individual property-related
debt and creating a single $275.0 million term loan which is
cross-collateralized by five of the original six properties. The loan has a
ten-year term and bears interest at 7.23%. Upon closing the loan, the lien on 10
Almaden was released and the property was added to Cornerstone's unencumbered
pool.

On December 15, 1999, through an extension and modification agreement, the
maturity date of the $58.0 million variable rate debt held on Seaport Centre was
extended from December 31, 1999 to December 31, 2000. All other terms of the
note remain unchanged.

34
<PAGE>
OTHER INDEBTEDNESS

On August 8, 1995, the existing $32.5 million term loan (the "Term Loan")
was extended through December 31, 2003 and assigned to Deutsche Bank AG London
at an interest rate of 5.0%. The Term Loan had a $32.5 million balance at
December 31, 1996. The loan was prepaid on March 18, 1997, since, under its
terms, it was required to be prepaid upon Cornerstone's initial public offering
in the United States.

Effective January 1, 1996, in connection with the acquisition of the 10%
minority interest in Norwest Center, the Company entered into a $12.9 million
convertible promissory note payable to Hines Colorado Limited ("HCL"). The note
payable pays monthly interest only at the lesser of 8.11% or LIBOR plus 50 basis
points. The note is convertible at the option of HCL into shares of common stock
at $14.30 per share after January 1, 1997. At maturity of the note on
January 1, 2001, Cornerstone has the right to redeem the note in exchange for
common shares of the Company at the lower of the market price or $14.30 per
share.

At December 31, 1996, Cornerstone had a $10.0 million revolving line of
credit with Bankers Trust Company. The line was available for general corporate
and acquisition purposes at a rate equivalent to an adjusted Eurodollar rate.
The line was also available for the issuance of standby letters of credit at a
rate of 0.15% and expired on November 7, 1997.

On October 27, 1997, the Company entered into a three-year, $350.0 million
acquisition line of credit syndicated by Bankers Trust Company and The Chase
Manhattan Bank. The line bore interest at a rate of LIBOR plus 1.10% to 1.40%
depending on the Company's then current leverage ratio (as defined). Borrowings
under the facility at December 31, 1997 were $187.0 million at an average
interest rate of 8.12%. The line was also available for the issuance of standby
letters of credit. The facility was amended and restated on November 3,
1998--see below.

On November 3, 1998, a syndicate of 17 banks led by Deutsche Bank, The Chase
Manhattan Bank and Bank of America provided the Company with a $550.0 million
line of credit for acquisitions and general working capital purposes (the
"Revolving Credit Facility"). The facility is also available for the issuance of
letters of credit. The interest rate on the Revolving Credit Facility depends on
the Company's ratio of total debt to total asset value (as defined) at the time
of borrowing and will be at a spread of 1.10% to 1.40% over the applicable LIBOR
or Prime Rate at the borrower's option. The letters of credit will be priced at
the applicable Eurodollar credit spread. The Revolving Credit Facility expires
on November 3, 2001. As of December 31, 1999, $329.0 million of the facility was
outstanding at a rate of approximately 8.0%. Of this amount, approximately
$250.0 million is fixed with interest rate swaps, which effectively fix the rate
at 6.47%. Beginning January 2000, the rate will be reduced to 5.41% through the
expiration of the swaps in December 2000. These swaps are considered hedges for
federal income tax purposes. During 1999, the Revolving Credit Facility was
amended to allow the Company temporarily to increase its leverage from 55.0% to
60.0% for a short period, which has since expired. The amendment also increased
the Company's ability to enter into mortgage debt by decreasing the required
ratio of total property asset value (as defined) to secured indebtedness from
2.5 to 1.00 to 2.22 to 1.00.

The Company holds debt instruments that are sensitive to changes in interest
rates. The maturity, weighted average interest rates and fair values are
presented in the Consolidated Financial Statements which are part of this
report.

In the normal course of business, the Company also faces risks that are
either non-financial or non-qualitative. Such risks principally include credit
risks and legal risks and are not included in the aforementioned notes.

STOCKHOLDERS' AND UNITHOLDERS' DISTRIBUTIONS

Cornerstone intends to distribute at least 95.0% (90% beginning in 2001) of
its taxable income to maintain its qualification as a REIT. The Company
anticipates that cash flow will exceed taxable income

35
<PAGE>
for the foreseeable future. Cornerstone's distribution policy is to pay
distributions based upon cash flow, less prudent reserves. In connection with
the Wilson Acquisition, the Company paid distributions of $0.15 per share/unit
to all stockholders and unitholders on February 26, 1999 (to stockholders and
unitholders of record as of December 15, 1998 and January 29, 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). The Company paid distributions of $0.30 per share/unit to all
stockholders and unitholders on August 31, 1999 (to stockholders and unitholders
of record as of July 30, 1999). The Company paid distributions of $0.30 per
share/unit to all stockholders and unitholders on November 30, 1999 (to
stockholders and unitholders of record as of October 29, 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.

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

LIQUIDITY

At December 31, 1999, the Company had approximately $19.7 million in cash
and cash equivalents and approximately $222.0 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. Restricted cash also includes the proceeds from the sale
of certain properties during 1999 totaling approximately $211.5 million which
are restricted pursuant to the terms of Section 1031 of the Internal Revenue
Code of 1986, as amended, "Exchange of property held for productive use or
investment."

At December 31, 1999, Cornerstone also had $221.0 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 2000.

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, including earthquake insurance where
necessary. A majority of the Company's leases with the majority of its tenants
require the tenants to pay most operating expenses and increases in common area
maintenance expenses, which reduces the Company's exposure to increases in costs
and operating expenses resulting from inflation.

CONCENTRATION OF RISK

Approximately 5.8 million of the Company's 18 million rentable square feet
is located in the San Francisco metropolitan market, accounting for
approximately 29% of the Company's total assets at December 31, 1999. In
addition, five of the Company's 83 office Properties are located in the Downtown
Boston market, accounting for approximately 19.4% of the Company's office and
parking revenues for the year ended December 31, 1999. This concentration of
assets makes the Company particularly vulnerable to adverse changes in economic
conditions in the San Francisco and Boston metropolitan areas. A significant
decline in these economic conditions could have a material adverse effect on the
Company.

36
<PAGE>
Norwest Corporation and its subsidiary, Norwest Bank Denver N.A., tenants of
the Company, provided approximately 6.2%, 9.5% and 20% of office and parking
rental income for the years ended December 31, 1999, 1998 and 1997,
respectively. Included in deferred tenant receivables is approximately
$34.8 million and $33.9 million due from Norwest Corporation at December 31,
1999 and 1998, respectively. As a result of the sale of the Company's property
located in Denver during the fourth quarter of 1999, the concentration of
revenue received from this tenant will be significantly reduced.

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 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.

YEAR 2000 COMPLIANCE

The Company previously recognized the material nature of the business issues
surrounding computer processing of dates into and beyond the Year 2000 and began
taking corrective action. The Company's efforts included: (i) assessment of
compliance of information systems at the corporate offices in New York, Atlanta
and San Mateo; (ii) assessment of compliance of information and real estate
operating systems at the property sites; 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 covered 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. Management believes the Company has completed all of
the activities within its control to ensure that the Company's systems are Year
2000 compliant and the Company has experienced no interruptions to normal
operations due to the start of the Year 2000.

The Company's total historical Year 2000 readiness costs were immaterial to
the Company's financial condition. The costs incurred in the current fiscal year
consisted of recurring system upgrades and replacements, immaterial internal
staff costs and other expenses such as telephone and mailing costs. The Company
does not anticipate incurring any additional material costs to address Year 2000
issues.

As of March 22, 2000, the Company has not experienced any material
disruptions of its internal computer systems or software applications, and has
not experienced any problems with the computer systems or software applications
of its External Agents. The Company will continue to monitor these External
Agents to determine the impact, if any, on the business of the Company and the
actions the Company must take, if any, in the event of non-compliance by any of
these External Agents. Based upon the Company's assessment of compliance by
External Agents, there appears to be no material business risk

37
<PAGE>
posed by any such noncompliance. Moreover, the Company generally believes that
the vendors that supply products to the Company are responsible for the
products' Year 2000 functionality.

Although the Company's Year 2000 rollover did not present any material
business disruption, there are some remaining Year 2000-related risks, including
risks due to the fact that the Year 2000 is a leap year. These risks include
potential product supply issues and other non-operational issues. Management
believes that appropriate action has been taken to address these remaining Year
2000 issues and contingency plans are in place to minimize the financial impact
to the Company. Management, however, cannot be certain that Year 2000 issues
will not have a material adverse impact on the Company, since the evaluation
process is not yet complete and it is early in the Year 2000.

DEVELOPMENT PROJECT

In April 1998, the Company entered into a contract to acquire from the
developer the 928,857 square-foot Piper Jaffray building under construction in
Minneapolis. In November 1999, this contract was amended in connection with a
350,000 square-foot expansion lease with a major tenant of the building. The
contract was amended to provide for a purchase price equal to the costs incurred
in construction and development plus a fixed amount to the developer plus an
additional amount based on the leasing of the building. In addition, at the
Company's election, the closing of the acquisition may occur prior to the
completion of the building, but the developer will remain obligated to complete
the project. Through December 31, 1999, approximately $109.4 million has been
spent on the construction. The project is scheduled to be completed in the year
2000 and is approximately 75.0% pre-leased.

SUBSEQUENT EVENTS

On January 20, 2000, the Company declared a distribution of $0.31 per
share/unit paid on February 29, 2000, to common stockholders and unitholders of
record as of January 31, 2000.

On January 21, 2000, the Company purchased 400 Capitol Mall in Sacramento,
California. This property contains approximately 502,000 rentable square feet.
The total purchase price for the Property was approximately $130.0 million,
consisting of approximately $128.0 million in cash which were Section 1031
exchange funds from the sale of One Norwest Center in Denver, Colorado, and
approximately $2.0 million of which was paid in UPREIT Units valued at $17.25
per unit.

On February 11, 2000, the Company announced that it had entered into an
agreement and plan of merger with Equity Office Properties Trust ("EOP") (the
"EOP Merger"). The merger agreement provides for a merger of Cornerstone with
and into EOP and a merger of the Operating Partnership with and into EOP
Operating Limited Partnership. In the mergers, holders of common stock of
Cornerstone and holders of Units in the Operating Partnership shall be entitled
to elect to receive, for each share or unit, as the case may be, either 0.7009
of a share of beneficial interest of EOP (or, in the case of the Cornerstone
Units, 0.7009 of a Class A Unit of EOP Operating Limited Partnership), or $18.00
per share (or per Unit, as the case may be) in cash, subject to pro ration as
provided in the merger agreement. Each share of 7% Cumulative Convertible
Preferred Stock, liquidation preference $16.50 per share, of Cornerstone shall
be converted into the right to receive $18.00, plus accrued and unpaid
dividends, in cash. For U.S. federal income tax purpose, the merger is expected
to be tax-free to Cornerstone stockholders who are U.S. persons and who receive
EOP shares in the merger, except that any such stockholder who receives cash in
addition to EOP shares generally will recognize gain (but not loss) in an amount
equal to the amount of cash received in the merger, or, if less, the excess of
the fair market value of the EOP shares and cash received in the merger over the
stockholder's basis in the Cornerstone common stock exchanged in the merger. The
merger is also expected in most cases to be tax-free to Cornerstone stockholders
who are non-U.S. persons, although certain non-U.S. stockholders may be subject
to U.S. tax under the provisions of the Foreign Investment in Real Property Tax
Act. The mergers are subject to customary closing conditions, including the
approval of the merger by the shareholders of EOP and the stockholders of

38
<PAGE>
Cornerstone and the approval of the partnership merger, to the extent necessary,
by the partners of EOP Operating Limited Partnership and the Operating
Partnership.

On March 8, 2000, as provided in the merger agreement with EOP, the Board of
Directors declared a distribution of $0.20 per share/unit, payable on April 14,
2000, to Common Stockholders and Unitholders of record as of March 31, 2000.
This distribution was declared to make Cornerstone's distribution schedule
consistent with that of EOP pending the merger (see above). Thereafter, it is
anticipated that Cornerstone's dividends will be paid as of the end of each
quarter until the completion of the EOP Merger.

On March 8, 2000, 9,200 UPREIT Units were redeemed for Shares of Common
Stock on a one-for-one basis.

On March 15, 2000, the Company sold its interest in a Property located in
East Bay, California for gross proceeds of $14,425,000. The Property had been
acquired as part of the Wilson Acquisition in December 1998.

On March 23, 2000, the Company sold its interest in a Property located in
East Bay, California for gross proceeds of $12,800,000. The Property had been
acquired as part of the Wilson Acquisition in December 1998.

ITEM 7A. 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 December 31, 1999 ranged from LIBOR plus 0.5% to LIBOR plus 1.65%.

Annual rates on advances from the Revolving Credit Facility depend on the
Company's ratio of total debt to asset value (as defined) at the time of
borrowing and will be at a spread of 1.10% to 1.40% over the applicable LIBOR or
Prime Rate at the Company's option. Of the total advances outstanding under the
facility at December 31, 1999, $250.0 million is fixed with interest rate swaps,
which effectively fix the rate at 6.47%. Beginning January 2000, the rate will
be reduced to 5.41% through the expiration of the swaps in December 2000.

<TABLE>
<CAPTION>
FAIR
2000 2001 2002 2003 2004 THEREAFTER TOTAL VALUE
-------- -------- -------- -------- -------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Long-Term Debt:
Fixed rate........................ 65,000 -- 62,661 -- 86,517 1,037,809 1,251,987 1,183,491
Average interest rate........... 7.28% -- 6.81% -- 7.33% 7.34%
Variable rate..................... 119,192 341,926 48,160 16,066 -- -- 525,344 525,344
Interest Rate Swaps:
Variable to Fixed................. 250,000 -- -- -- -- -- -- --
Average pay rate (1)............ 5.07% -- -- -- -- -- -- --
Average receive rate (1)........ 6.46% -- -- -- -- -- -- --
</TABLE>

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

(1) As of December 31, 1999.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

See the Financial Statements included as a part hereof.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.

None.

39
<PAGE>
PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

<TABLE>
<CAPTION>
DIRECTORS' PRINCIPAL OCCUPATIONS
DIRECTORS(1) DURING THE LAST FIVE YEARS(2) AGE DIRECTOR SINCE
- ------------ ------------------------------------------------ -------- --------------
<S> <C> <C> <C>
Cecil D. Conlee......... Chairman of CGR Advisors, Atlanta, Georgia. 63 1996
Rodney C. Dimock........ Executive Vice President since April 1999; 53 1998
Co-Chief Operating Officer of the Company from
December 1998 to April 1999; President and Chief
Operating Officer of the Company from February
1998 to December 1998; Executive Vice President
and Chief Operating Officer of the Company from
October 1995 to February 1998. President of
Aetna Realty Investors from April 1991 to
September 1995.
Blake Eagle............. Chairman, since January 1994, of the MIT Center 66 1995
for Real Estate, Cambridge, Massachusetts.
Donald G. Fisher........ Founder and Chairman of The Gap, Inc; Chief 71 1998
Executive Officer of The Gap, Inc. from 1969 to
1995.
Randall A. Hack......... Senior Managing Director and Member of Nassau 52 1998
Capital L.L.C. (investment management);
President and Chief Executive Officer of
Princeton University Investment Company, from
1990 to January 1995.
Dr. Karl-Ludwig Independent financial consultant, Greenwich, 65 1981
Hermann............... Connecticut.
Hans C. Mautner......... Vice Chairman of Simon Property Group since 62 1992
September 1998; Chairman and Chief Executive
Officer of Corporate Property Investors (real
estate investments), New York City from March
1994 to September 1998.
Dr. Lutz Mellinger...... Member of the Divisional Board Corporate and 58 1997
Real Estate, Deutsche Bank AG.
John S. Moody........... President and Chief Executive Officer of the 51 1991
Company since December 1998; Chairman, Chief
Executive Officer and President of the Company
from November 1997 to December 1998; President
and Chief Executive Officer of the Company from
June 1991 to February 1998; President and Chief
Executive Officer from April 1991 to July 1995
of Deutsche Bank Realty Advisors, Inc., New York
City.
Craig R. Stapleton...... President of Marsh & McLennan Real Estate 54 1998
Advisors, Inc., New York, New York.
Michael J.G. Topham..... Executive Vice President and Managing Director 52 1995
of Hines Interests Limited Partnership (real
estate investment and management), Houston,
Texas.
Dick van den Bos........ Consultant to PGGM. 59 1997
Jan van der Vlist....... Director of Real Estate Investments for PGGM. 45 1997
</TABLE>

40
<PAGE>

<TABLE>
<CAPTION>
DIRECTORS' PRINCIPAL OCCUPATIONS
DIRECTORS(1) DURING THE LAST FIVE YEARS(2) AGE DIRECTOR SINCE
- ------------ ------------------------------------------------ -------- --------------
<S> <C> <C> <C>
William Wilson III...... Chairman of the Company since December 1998; 63 1998
President and Chairman of William Wilson &
Associates from 1978 to 1998.
</TABLE>

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

(1) Information not of record with the Company is based upon the information
furnished to the Company by said persons.

(2) Except as otherwise indicated, each of the individuals listed has been
engaged in the principal occupation set forth opposite his name or has held
a similar position with the same company for more than the last five years.

Mr. Conlee is also a director of Oxford Industries, Inc. and Central Parking
Corporation. Mr. Eagle is also a director of Storage Trust Realty. Mr. Mautner
is also a director of each of Simon Property Group, Julius Baer Investment
Management and eight funds managed by Dreyfus Service Corporation. Mr. Moody is
also a director of ProLogis Trust. Mr. Stapleton is also a director of each of
Allegheny Properties, Inc., Cendant Corp., Vacu Dry, Inc. and T.B. Woods.
Mr. Fisher is also a director each of The Gap, Inc., the Charles Schwab
Corporation and AirTouch Communications. Mr. Hack is also a director of each of
Crown Castle International Corp., Cypress Communications, Inc., KMC Telecom
Holdings, Inc., SWWT Inc., and OmniCell Technologies, Inc.

See "Certain Transactions" below for information regarding transactions
between the Company and entities associated with certain directors and nominees.

BOARD OF DIRECTORS, COMMITTEES, MEETINGS AND REMUNERATION

The Board of Directors met seven times during 1999. Except for
Dr. Mellinger, all of the directors attended at least 70% of the meetings of the
Board and its committees. In 1999, each director of the Company, other than
Messrs. Moody, Dimock and Wilson received an annual retainer fee of $20,000,
paid in cash, and a cash fee of $1,000 per meeting attended. The Company either
reimburses each director for his expenses incurred in attending any meeting of
the Board or a committee thereof or pays such expenses directly. If a member of
the Board of Directors travels to inspect a property proposed to be acquired by
the Company, such director is reimbursed for his travel expenses.

The Board of Directors has a standing Administrative Committee chaired by
Mr. Moody. Messrs. Wilson, van den Bos and Mautner are its other members. The
Committee met one time in 1999. To the extent permitted by law, the
Administrative Committee may take action with the same force and effect as if
the entire Board of Directors had acted in such situation where time is of the
essence and it would be impractical and not in the best interests of the Company
to convene a meeting of the entire Board of Directors.

The Board of Directors has a standing Audit Committee, chaired by Mr. Eagle
with Messrs. Fisher, Hermann and Mellinger as its other members. The Committee
met two times in 1999. The Audit Committee recommends an independent auditor for
the Company, meets with the independent auditor to review the annual statements
and accounts and the scope of the audit of the Company and reviews the internal
controls and financial structure of the Company.

The Board of Directors has a standing Compensation Committee, chaired by
Mr. Mautner with Messrs. Fisher, Hack, Stapleton and Topham as its other
members. The Committee met four times in 1999. Its primary function is to review
and make recommendations to the Board of Directors with respect to the
compensation of each of the principal corporate officers.

The Board of Directors has a standing Board Affairs Committee, chaired by
Mr. Mautner with Messrs. Wilson, Moody, Eagle, and van den Bos as its other
members. The Committee met one time in 1999. Its primary function is to review
all persons recommended to serve on the Board of Directors and to

41
<PAGE>
make recommendations to the Board regarding those persons and to review and make
other recommendations to the Board as to the composition, organization, work,
compensation and affairs of the Board and its committees. The Committee will
consider persons recommended for membership on the Board when suggested in good
faith by a stockholder (with the consent of the nominee).

The Board of Directors has a standing Investment Committee, chaired by
Mr. Conlee, with Messrs. Dimock, Moody, van der Vlist, van den Bos and Wilson as
its other members. The Committee met five times in 1999. The Committee reviews
potential investments for the Company.

EXECUTIVE OFFICERS

The executive officers of the Company are elected by the Board of Directors
to serve at the pleasure of the Board or until their successors are elected and
qualified. The table below sets forth for each executive officer of the Company
the name, principal occupations during the last five years, age and length of
continuous service as an executive officer of the Company.

<TABLE>
<CAPTION>
OFFICERS PRINCIPAL OCCUPATIONS DURING THE LAST FIVE YEARS AGE
- -------- -------------------------------------------------------- --------
<S> <C> <C>
William Wilson III.......... Chairman of the Company since December 1998. President 63
and Chairman of William Wilson & Associates from its
founding in 1978 to December 1998.
John S. Moody............... President and Chief Executive Officer of the Company 51
since December 1998. Chairman, Chief Executive Officer,
and President of the Company from November 1997 to
December 1998. President and Chief Executive Officer of
the Company from June 1991 to February 1998. President
and Chief Executive Officer of Deutsche Bank Realty
Advisors, Inc. from April 1991 to July 1995.
Rodney C. Dimock............ Executive Vice President of the Company since April 53
1999.
Co-Chief Operating Officer of the Company from December
1998 to April 1999. President and Chief Operating
Officer from February 1998 to December 1998. Executive
Vice President and Chief Operating Officer of the
Company from October 1995 to February 1998. President of
Aetna Realty Investors from April 1991 to September
1995.
H. Lee Van Boven............ Chief Operating Officer and General Counsel of the 61
Company since April 1999. General Counsel and Co-Chief
Operating Officer from December 1998 to April 1999.
Chief Operating Officer of William Wilson & Associates
from February 1997 to December 1998. General Counsel and
Executive Vice President of William Wilson & Associates
from September 1996 to December 1998. Prior to September
1996, partner with the law firm of Farella, Braun &
Martel LLP.
Kevin P. Mahoney............ Senior Vice President and Chief Financial Officer of the 39
Company since December 1998. Chief Financial Officer of
the Company since February 1998. Vice President and
Treasurer of the Company from September 1992 to February
1998.
R. Matthew Moran............ Chief Investment Officer of the Company since December 37
1998. Vice President of William Wilson & Associates from
February 1993 to December 1998.
</TABLE>

42
<PAGE>

<TABLE>
<CAPTION>
OFFICERS PRINCIPAL OCCUPATIONS DURING THE LAST FIVE YEARS AGE
- -------- -------------------------------------------------------- --------
<S> <C> <C>
John J. Hamilton III........ Chief Development Officer of the Company since December 43
1998. Executive Vice President of William Wilson &
Associates from March 1993 to December 1998.
Thomas P. Loftus............ Secretary of the Company since June 1993 and Chief 41
Administrative Officer of the Company since February
1998. Vice President and Controller of the Company from
June 1992 to February 1998.
Stephen J. Pilch............ Senior Vice President of the Company since December 38
1998. Senior Vice President-Investment Management of
William Wilson & Associates from March 1998 to December
1998. Vice President-Investment Management of William
Wilson & Associates from May 1997 to March 1998.
Managing Director of Aetna Life Insurance Company from
August 1993 to May 1997.
A. Robert Paratte........... Senior Vice President of the Company since December 44
1998. Senior Vice President of William Wilson &
Associates from December 1997 to December 1998. Vice
President of William Wilson & Associates from November
1994 to December 1997.
Thomas A. Nye............... Senior Vice President of the Company since January 2000. 35
Vice President of the Company since July 1995 and
Treasurer of the Company since April 1999. Vice
President from December 1993 to July 1995 and Assistant
Vice President from July 1991 to December 1993 of
Deutsche Bank Realty Advisors, Inc.
</TABLE>

43
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION

The following table sets forth information concerning the compensation of
the Company's Chief Executive Officer and each of the other four most highly
compensated executive officers of the Company at the end of 1999 (the "Named
Officers") for the past three years.

SUMMARY COMPENSATION TABLE

<TABLE>
<CAPTION>
LONG-TERM AWARDS
-----------------------------------------
ANNUAL COMPENSATION RESTRICTED SECURITIES
------------------------------ STOCK UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS(1) AWARDS(2) OPTIONS(#) COMPENSATION(3)
- --------------------------- -------- -------- -------- ---------- ---------- ---------------
<S> <C> <C> <C> <C> <C> <C>
John S. Moody........................ 1999 $350,000 $420,000 -- 175,000
President and Chief 1998 350,000 790,000 -- 750,000 $ 8,864
Executive Officer 1997 350,000 350,000 $579,000 325,000 24,642 24,935

Rodney C. Dimock..................... 1999 $275,000 $200,000 -- 75,000
Executive Vice President 1998 275,000 545,000 -- 400,000 $ 8,820
1997 275,000 225,000 $247,000 160,000 24,520 24,720

H. Lee Van Boven(4).................. 1999 $335,000 $190,000 -- 100,000 $ 4,000
Chief Operating Officer 1998 -- -- -- 92,534 --
and General Counsel 1997 -- -- -- -- --

John J. Hamilton, III(4)............. 1999 $350,000 $150,000 -- 75,000 $ 4,000
Chief Development Officer 1998 -- -- -- 92,533 --
1997 -- -- -- -- --

Kevin P. Mahoney..................... 1999 $225,000 $175,000 -- 75,000 $ 5,416
Senior Vice President and Chief 1998 225,000 380,000 -- 305,000 11,269
Financial Officer 1997 110,000 115,000 $167,000 78,000 11,355
</TABLE>

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

(1) Bonus includes 1998 Bonus and 1998 Merger Bonus in connection with the
Merger Agreement with William Wilson & Associates entered into in
June 1998.

(2) Dollar value calculated by multiplying the closing market price on the New
York Stock Exchange with respect to 1997 on the date of grant by the number
of shares awarded. The aggregate number of restricted shares held and their
value as of December 31, 1999 were as follows: Mr. Moody--93,000
shares/$1,360,125; Mr. Dimock--57,000 shares/$833,625; Mr. Mahoney--24,000
shares/$351,000. The 1997 awards fully vest with respect to 13.333% on
June 30, 1998, 1999, 2000, and 2001, and with respect to 46.668% on
June 30, 2002. Regular dividends are paid on restricted stock.

(3) "All Other Compensation" includes Company contributions of $4,000 for each
of the Named Officers to the Company's 401(k) Retirement Plan and
additionally, contributions to the Company's Profit Sharing Plan on behalf
of the named individuals in the following amounts for 1998 and 1997:
Mr. Moody--$16,000; Mr. Dimock--$16,000; Mr. Mahoney--$6,012. It also
includes premiums paid by the Company for life insurance for the benefit of
the named individuals in the following amounts: Mr. Moody--$4,864;
Mr. Dimock--$4,820; Mr. Mahoney--$1,416.

(4) Messrs. Van Boven and Hamilton became officers of the Company pursuant to
the Wilson Acquisition in December 1998 and therefore have no compensation
from the Company prior to 1999.

44
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR

<TABLE>
<CAPTION>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE
--------------------------------------------------------- VALUE AT ASSUMED
NUMBER % OF TOTAL ANNUAL RATES OF STOCK
OF SECURITIES OPTIONS PRICE APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OR OPTION TERM(1)
OPTIONS EMPLOYEES BASE PRICE EXPIRATION -----------------------
NAME GRANTED(#)(2) IN FISCAL YEAR ($/SH) DATE 5%($) 10%($)
- ---- ------------- -------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
John S. Moody.................... 175,000 11.7% $15.1875 02/20/10 1,671,513 4,235,787
Rodney C. Dimock................. 75,000 5.0 15.1875 02/20/10 716,362 1,815,337
H. Lee Van Boven................. 100,000 6.7 15.1875 02/20/10 955,150 2,420,450
John J. Hamilton, III............ 75,000 5.0 15.1875 02/20/10 716,362 1,815,337
Kevin P. Mahoney................. 75,000 5.0 15.1875 02/20/10 716,362 1,815,337
</TABLE>

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

(1) Such values are calculated based on the requirements promulgated by the
Securities and Exchange Commission and are not intended to forecast future
stock appreciation of the Common Stock. There can be no assurance that such
values will be achieved.

(2) Such options vest in increments of 33 1/3% on each of the first three
anniversaries of the date of grant.

AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION
VALUES

<TABLE>
<CAPTION>
SHARES NUMBER OF SECURITIES
ACQUIRED UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-
ON EXERCISES VALUE OPTIONS AT FY-END (#) MONEY OPTIONS AT FY-END ($)(1)
NAME (#) REALIZED ($) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
- ---- ------------ ------------ ------------------------- ------------------------------
<S> <C> <C> <C> <C>
John S. Moody........... -- -- 925,000/625,000 $138,125/$0
Rodney C. Dimock........ -- -- 466,166/308,333 $ 65,338/0
H. Lee Van Boven........ -- -- 30,842/161,692 0/0
John J. Hamilton III.... -- -- 30,841/136,692 0/0
Kevin P. Mahoney........ 127,000 $301,372 152,662/253,339 $ 3,250/0
</TABLE>

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

(1) Market value of stock on the New York Stock Exchange at December 31, 1999
less the option exercise price.

EMPLOYMENT AGREEMENTS

Messrs. Wilson and Moody have employment agreements with the Company. The
employment agreements were executed in connection with the Wilson Acquisition.
Mr. Moody's employment agreement provides for Mr. Moody to serve as Chief
Executive Officer and President of the Company for a three-year term commencing
on December 16, 1998. The agreement provides for an annual salary of $350,000
per year, subject to upward adjustment annually as the Board or the Compensation
Committee may determine, and for Mr. Moody's participation in the Company's
executive bonus and incentive programs, including stock option and restrictive
stock programs, in a manner comparable to other senior executives of the Company
as determined by the Compensation Committee.

Mr. Wilson's employment agreement provides that Mr. Wilson will serve as
Chairman of the Board in accordance with the Amended and Restated Bylaws of the
Company for a three-year term commencing on December 16, 1998. The agreement
provides for an annual salary of $400,000 per year, subject to upward adjustment
annually as the Board or the Compensation Committee may determine, and for
Mr. Wilson's participation in the Company's executive bonus and incentive
programs, including stock option and restrictive stock programs, in a manner
comparable to other senior executives of the Company as determined by the
Compensation Committee. Mr. Wilson's employment agreement also obligates

45
<PAGE>
Mr. Wilson to comply with the non-competition provisions of the Contribution
Agreement pursuant to which the Wilson Acquisition was consummated.

RETENTION AGREEMENTS

The Company has entered into retention agreements with each of its executive
officers, including the Named Officers, to address the terms and conditions of
their employment in the event of a change in control. A "change in control" is
generally said to occur when: (i) any person becomes the owner of 25% or more of
the Company's voting securities; (ii) directors who constitute the Board at the
beginning of any two-year period, and any new directors whose election or
nomination for election was approved by a vote of at least three-quarters of the
directors then in office who either were directors at the beginning of such
period or whose election or nomination for election was previously so approved,
cease to constitute a majority; (iii) a merger, consolidation or reorganization
in which the Company's voting securities do not continue to represent at least
50% of the surviving entity; or (iv) a reorganization, liquidation, or sale of
all or substantially all of the Company's assets. The pending merger with EOP
will be a "change in control" for purposes of the retention agreements, and EOP
has agreed in the EOP Merger Agreement to assume Cornerstone's obligations under
these retention agreements.

In the event of termination of employment by the Company without cause, or
by the employee for good reason, within two years following a change in control,
the Company will make a lump sum payment of (i) the pro rata portion of the
annual bonus for the year termination occurred, calculated on the basis of the
target bonus and on the assumption that all performance goals have been or will
be achieved, and (ii) three times annual compensation in the case of
Messrs. Moody, Dimock, Wilson and Van Boven and two times annual compensation in
the case of all other officers. Annual compensation is generally defined as the
higher of (A) the average of the three annual bonuses paid prior to termination,
(B) the average of the three annual bonuses paid prior to the change in control
or (C) the target annual bonus for the year during which termination occurs,
plus the higher of the salary in effect immediately prior to termination or
change in control.

An officer may be terminated for "cause" if he is convicted of a felony,
reveals confidential information about the Company or refuses to substantially
perform his duties. An officer can terminate for "good reason" if the Company
reduces his salary or benefits, relocates his office more than 25 miles from the
present location, detrimentally alters his title or position, fails to get a
successor to agree to assume the obligations under the retention agreement or
materially breaches any provision of the agreement.

In addition, the officer and his eligible dependents will continue to be
eligible to participate during the benefit continuation period in the medical,
dental, health, life and other welfare benefit plans and arrangements applicable
to him immediately prior to his termination of employment, on the same terms and
conditions in effect immediately prior to such termination. As defined in the
agreements, "benefit continuation period" means the period beginning on the day
of termination and ending on the earlier to occur of (i) the third anniversary
of the date of termination in the case of Messrs. Moody, Dimock, Wilson and Van
Boven and the second anniversary of the date of termination in the case of all
other officers and (ii) the date that the officer is eligible and elects
coverage under the plans of a subsequent employer which provide substantially
equivalent or greater benefits to the officer and his dependents.

If the payments to an officer under the retention agreement constitute
"parachute payments" (as defined in Section 280G of the Internal Revenue Code of
1986, as amended (the "Code")), and the officer would receive more value after
taxes if the payments to be made to the officer were capped at three times the
"base amount" less $1.00, then the payments to the officer will be reduced to
that amount.

The Company will require any successor (whether direct or indirect, by
purchase, merger, consolidation or otherwise) to all or substantially all of the
business or assets of the Company expressly to assume and to agree to perform
its obligations under the retention agreements in the same manner and to the
same extent that the Company would be required to perform such obligations if no
such succession had taken place.

46
<PAGE>
SUPPLEMENTAL PENSION BENEFIT

The Company has entered into a contract with Mr. Moody whereby amounts are
accrued under an unfunded arrangement to pay Mr. Moody a supplemental pension.
Under the contract, his supplemental pension account was established with a
credit of $250,000 as of July 1, 1995, and the Company is obligated to credit
the account in the amount of $60,000 each subsequent July 1 during the
continuance of Mr. Moody's employment. The account is also credited with any
deemed income, gains or losses which would be attributable to a corresponding
investment of an equal cash amount in such investment as the Company, taking
into account Mr. Moody's views, shall deem the account to be invested. In
general, unless his employment is terminated by the Company for cause (as
defined), Mr. Moody will receive in a lump sum the total amount credited to his
supplemental pension account when he retires or his employment otherwise ceases.
In the event Mr. Moody's employment is terminated by the Company other than for
cause, or if he resigns for good reason (as defined), in either case following a
change in control (as defined), the Company is obligated to credit his
supplemental pension account with an amount equal to $60,000 times the number of
years (and fractions) remaining between his age on the date his employment
ceases and age 60.

COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION

During 1999, Messrs. Mautner, Fisher, Hack, Stapleton and Topham served as
members of the Compensation Committee. No member of the Compensation Committee
was an officer or employee of the Company or any of its subsidiaries during 1999
or at any time prior thereto. See "Item 13. Certain Relationships and Related
Transactions."

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The following table sets forth information with respect to persons known by
the Company to be the beneficial owner of 5% or more of the outstanding Common
Stock of the Company as of March 22, 2000.

<TABLE>
<CAPTION>
BENEFICIAL OWNERSHIP
-----------------------
NUMBER OF PERCENTAGE
NAME AND ADDRESS SHARES OF CLASS
- ---------------- ---------- ----------
<S> <C> <C>
PGGM........................................................ 45,779,703 35.4%
P.O. Box 117
3700 AC Zeist
The Netherlands

New York State Teachers' Retirement System.................. 6,896,550 5.3%
10 Corporate Woods Drive
Albany, NY 12211-2395
</TABLE>

Following are the shares of the Company's Common Stock beneficially owned as
of March 22, 2000 (i) by all directors, (ii) by each of the Named Officers, and
(iii) by the directors and executive officers as a group. Except as footnoted,
each named individual has sole voting and investment power over the shares
listed by that individual's name. Included in the table are the number of shares
of Common Stock into which Units beneficially owned by the persons are
redeemable (if the Company elects to issue shares rather than pay cash upon such
redemption). Units are redeemable for shares or cash, at the option of the
Company. All of the Units beneficially owned by the persons listed below were
issued in connection with the Wilson Acquisition.

47
<PAGE>

<TABLE>
<CAPTION>
NAME SHARES PERCENT(12)
- ---- ---------- -----------
<S> <C> <C>
Cecil D. Conlee............................................. 8,000 *
Rodney C. Dimock............................................ 549,867(1) *
Blake Eagel................................................. 10,349(2) *
Donald G. Fisher............................................ 539,196(3) *
Randall A. Hack............................................. 2,520,375(4) 1.9
Dr. Karl-Ludwig Hermann..................................... 10,000(2) *
Hans C. Mautner............................................. 50,924(2) *
Dr. Lutz Mellinger.......................................... -- *
John S. Moody............................................... 1,075,806(5) *
Craig R. Stapleton.......................................... 116,900(6) *
Michael J.G. Topham......................................... 10,349(2) *
Dick van den Bos............................................ -- *
Jan van der Vlist........................................... -- *
William Wilson III.......................................... 3,452,986(7) 2.7
John J. Hamilton, III....................................... 636,274(8) *
Thomas P. Loftus............................................ 225,161(9)
Kevin P. Mahoney............................................ 178,840(10) *
R. Matthew Moran............................................ 149,794(8) *
Thomas A. Nye............................................... 227,060(9) *
Stephen J. Pilch............................................ 78,390(11) *
A. Robert Paratte........................................... 77,680(11) *
H. Lee Van Boven............................................ 221,767(8) *
All directors and executive officers as a group (22
persons).................................................. 10,139,718 7.9
</TABLE>

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

* Less than 1%

(1) Includes 466,160 shares subject to options currently exercisable.

(2) Includes 10,000 shares subject to options currently exercisable.

(3) Includes 226,146 shares (assuming redemption of 226,146 Units) owned jointly
with Mr. Fisher's spouse and 313,050 shares (assuming redemption of 313,050
Units) deemed beneficially owned by Mr. Fisher as a result of his control of
DDRWJ Investment Company.

(4) Includes 1,538,597 shares owned by Nassau Capital Funds, L.P. and 981,778
shares owned by Nassau Capital Real Estate Partners, L.P. which may be
deemed to be beneficially owned by Mr. Hack solely as a result of his
position as a member of Nassau Capital L.L.C., the sole general partner of
such limited partnerships. Mr. Hack disclaims beneficial ownership of such
shares.

(5) Includes 924,985 shares subject to options currently exercisable.

(6) Includes 29,000 shares held by Mr. Stapleton's spouse and 17,000 shares held
by Mr. Stapleton as trustee.

(7) Includes (i) 155,568 shares (assuming redemption of 22,845 Units) held by
Mr. Wilson as trustee for three trusts for the benefit of his children,
(ii) 2,776,882 shares (assuming redemption of 639,191 Units) owned directly
by Mr. Wilson, (iii) 294,630 shares (assuming redemption of 294,630 Units)
deemed beneficially owned by Mr. Wilson as a result of his control of Wilson
Investment Associates, Ltd., and (iv) 225,906 shares (assuming redemption of
225,906 Units) beneficially owned by Mr. Wilson through a family
partnership. Does not include 3,160,513 shares (assuming redemption of
3,160,513 Units) which may be deemed beneficially owned by Mr. Wilson as a
result of his control of four entities and of which Mr. Wilson may be deemed
to share voting and dispositive power with other executive officers of the
Company.

48
<PAGE>
(8) Includes 30,841 shares subject to options currently exercisable.

(9) Includes 199,667 shares subject to options currently exercisable.

(10) Includes 152,662 shares subject to options currently exercisable.

(11) Includes 41,663 shares subject to options currently exercisable.

(12) Based on 129,289,211 shares outstanding as of March 22, 2000. Assumes that
all options beneficially owned by the person are exercised and all Units
beneficially owned by the person are redeemed for shares of Common Stock.
The total number of shares used in calculating this percentage assumes that
none of the options beneficially owned by other persons are exercised and
none of the Units beneficially owned by other persons are redeemed for
shares of Common Stock.

49
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE SECURITIES EXCHANGE ACT OF 1934

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
executive officers and directors, and persons who beneficially own more than ten
percent of the Company's Common Stock, to file initial reports of ownership and
reports of changes in ownership with the Securities and Exchange Commission (the
"SEC") and the New York Stock Exchange. Executive officers, directors and
greater than ten percent beneficial owners are required by SEC regulations to
furnish the Company with copies of all Section 16(a) forms they file.

To the Company's knowledge, based solely on a review of the copies of such
reports furnished to the Company or written representations from the Company's
executive officers, directors and greater than ten percent beneficial owners,
all applicable filing requirements of the Company's executive officers and
directors were complied with in 1999.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

HINES INTERESTS LIMITED PARTNERSHIP

Through an affiliate, Hines Interests Limited Partnership ("HILP"), of which
Mr. Topham is an executive vice president, has a management agreement for One
Norwest Center in Denver, Colorado which expires December 31, 2005, pursuant to
which HILP was paid a management fee of approximately $654,000 for 1999. HILP
was also paid approximately $123,000 by the Company for other services rendered
to this property during 1999. In conjunction with the sale of this property in
December 1999, the management agreement was terminated and HILP received a
brokerage commission of approximately $1.6 million.

DEVELOPMENT PROJECTS

On September 30, 1999, the Operating Partnership entered into an option
agreement to acquire ownership interests in four joint ventures which own or
will acquire land in San Francisco, California for development of an
approximately 895,000 square-foot office project. The Operating Partnership
acquired the option from WWA Investors, LLC ("WWAI") and KFRITZ Investors, LLC,
in which the following executive officers of the Company hold interests: William
Wilson III, H. Lee Van Boven, John J. Hamilton III, R. Matthew Moran,
Stephen J. Pilch and A. Robert Paratte. As consideration for the option, the
Operating Partnership agreed to pay 50% of project costs incurred by the
developer in accordance with budgeted estimates approved by the Operating
Partnership. Through December 31, 1999, approximately $1.6 million has been paid
to WWAI with respect to this development. If the Operating Partnership elects to
exercise the option, the purchase price for the joint venture ownership
interests will be an amount equal to the remaining 50% of the project costs plus
a fixed payment of $7.6 million, which may be adjusted based on the number of
square feet of office space for which entitlements are received and which, at
the election of KFRITZ, may be payable in cash or UPREIT Units or a combination
thereof.

In July 1999, the Company acquired development rights for the Ferry Building
project in San Francisco, California, from WWAI. The consideration for the
transfer of these development rights to the Company was $200,000, plus
reimbursement of WWAI's development costs expended on the project, which
amounted to approximately $1,669,000. Wilson/Meany, LLC, a specialty retail
development firm affiliated with Mr. Wilson ("Wilson/Meany"), will provide
development services for the retail portion of the project. The Company will pay
Wilson/Meany a development management fee of approximately $510,000, payable
over a period of three years through June 2002.

400 CAPITOL MALL

On January 21, 2000, the Operating Partnership purchased 400 Capitol Mall in
Sacramento, California, from a joint venture owned 90% by an affiliate of Wells
Fargo Bank and 10% by WW-Sacramento, L.P.

50
<PAGE>
Messrs. Wilson and Hamilton are partners in WW-Sacramento, L.P. The purchase
price for the Property was approximately $130.0 million, approximately
$2.5 million of which was paid to the partners of WW-Sacramento, L.P. in cash
and UPREIT Units valued at $17.25 per unit. Mr. Wilson received 36,494 UPREIT
Units and Mr. Hamilton received 4,562 UPREIT Units in exchange for their
respective interests in WW-Sacramento, L.P.

WCP SERVICES, INC.

In connection with the Wilson Acquisition, certain third-party services
business of WW&A was acquired by WCP Services, Inc., a Delaware corporation
("WCP Services"). The Operating Partnership owns 100% of the nonvoting common
stock and 1% of the voting common stock of WCP Services. Mr. Wilson and
Mr. Moody each own 49.5% of the voting common stock of WCP Services. To fund the
purchase of such shares of voting common stock, the Operating Partnership loaned
$178,750 to each of Mr. Wilson and Mr. Moody, all of which remained outstanding
as of December 31, 1999. The notes accrue interest at a rate equal to 140 basis
points plus the one-year London Interbank Offered Rate, which rate is adjusted
annually. The notes are due and payable on or before December 16, 2008. In
connection with the EOP Merger Agreement, Messrs. Wilson and Moody entered into
an agreement to sell their voting common stock of WCP Services to EOP at a
purchase price of $200,000 each.

51
<PAGE>
PART IV

ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

The following documents are filed as part of this annual report:

(A) FINANCIAL STATEMENTS:

<TABLE>
<CAPTION>
PAGE NUMBER
-----------
<S> <C>
(i) The Company: F-1

The following financial statements and report of
independent accountants are filed herewith at the pages
indicated:
Report of Independent Accountants......................... F-2
Consolidated Balance Sheets at December 31, 1999 and
1998.................................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1999, 1998 and 1997........................ F-4
Consolidated Statements of Comprehensive Income for the
years ended December 31, 1999, 1998 and 1997............ F-5
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999, 1998 and 1997............ F-6
Consolidated Statements of Cash Flows for the years ended
December 31, 1999, 1998 and 1997........................ F-7
Notes to Consolidated Financial Statements................ F-8 to F-30
</TABLE>

(B) REPORTS ON FORM 8-K:

NONE.

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger among Equity Office Properties
Trust, EOP Operating Limited Partnership, Cornerstone
Properties Inc. and Cornerstone Properties Limited
Partnership dated February 11, 2000 incorporated by
reference to Exhibit 2.1 of the Company's Current Report on
Form 8-K dated February 16, 2000.

3.1(a) Restated Articles of Incorporation of Cornerstone Properties
Inc., as of March 12, 1996, incorporated by reference to
Exhibit 3.1 of the Company's Annual Report on Form 10-K for
the year ended December 31, 1996.

3.1(b) Certificate of Amendment of Restated Articles of
Incorporation of the Company, dated October 27, 1997,
incorporated by reference to Exhibit 4.2(b) of the Company's
Registration Statement on Form S-3 filed March 2, 1998
(Registration Statement No. 333-47149).

3.2 Amended and Restated Bylaws of Cornerstone Properties Inc.,
incorporated by reference to Exhibit 3.1 of the Company's
Current Report on Form 8-K dated December 16, 1998.

4.1 Specimen Common Stock Certificate, incorporated by reference
to Exhibit 4.1 of the Company's Registration Statement on
Form S-3 filed March 2, 1998 (Registration Statement No.
333-47149).

4.2 Certificate of Voting Powers, Designations, Preferences,
Limitations, Restrictions and Relative Rights of 7%
Cumulative Convertible Preferred Stock of the Company,
incorporated by reference to Exhibit 10.57 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1995.
</TABLE>

52
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<S> <C>
10.1 Convertible Promissory Note dated January 1, 1996 made by
Cornerstone Properties Inc., with Hines Colorado Limited in
the amount of $12,925,976.48, incorporated by reference to
Exhibit 10.63 of the Company's Annual Report on Form 10-K
for the year ended December 31, 1996.

10.2 Agreement of Limited Partnership of Cornerstone Properties
Limited Partnership dated as of December 23, 1997,
incorporated by reference to Exhibit 10.118 of the Company's
Annual Report on Form 10-K for the year ended December 31,
1997.

10.3 First Amendment to Agreement of Limited Partnership of
Cornerstone Properties Limited Partnership, incorporated by
reference to Exhibit 10.6 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

10.4 Second Amendment to Agreement of Limited Partnership of
Cornerstone Properties Limited Partnership, incorporated by
reference to Exhibit 10.7 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

10.5 Third Amendment to Agreement of Limited Partnership of
Cornerstone Properties Limited Partnership, incorporated by
reference to Exhibit 10.8 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

10.6 Fourth Amendment to Agreement of Limited Partnership of
Cornerstone Properties Limited Partnership, incorporated by
reference to Exhibit 10.9 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

10.7* Fifth Amendment to Agreement of Limited Partnership of
Cornerstone Properties Limited Partnership.

10.8 Stock Option Agreement, dated February 11, 2000, by and
among Cornerstone Properties Inc., Equity Office Properties
Trust, Deutsche Bank AG and Deutscher Herold
Lebensversicherungs-AG, incorporated by reference to
Exhibit 10.1 to the Company's Current Report on Form 8-K
dated February 16, 2000.

10.9 Employment Agreement dated December 16, 1998 between
Cornerstone Properties Inc. and Cornerstone Properties
Limited Partnership and William Wilson III, incorporated by
reference to Exhibit 10.10 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

10.10 Employment Agreement dated December 16, 1998 between
Cornerstone Properties Inc. and Cornerstone Properties
Limited Partnership and John S. Moody, incorporated by
reference to Exhibit 10.11 of the Company's Annual Report on
Form 10-K for the year ended December 31, 1998.

10.11 Amended and Restated Cornerstone Properties Inc. 1998
Long-Term Incentive Plan, incorporated by reference to
Annex D of the Company's definitive Proxy Statement on
Schedule 14A dated November 13, 1998.

10.12 Form of Retention Agreement for executive officers of the
Company, incorporated by reference to Exhibit 10.13 to the
Company's Annual Report on Form 10-K for the year ended
December 31, 1998.

10.13 Second Amended and Restated Revolving Credit and Guaranty
Agreement dated November 3, 1998 among Cornerstone
Properties Inc. and Cornerstone Properties Limited
Partnership (the "Borrowers"), the subsidiaries of the
Borrowers (the "Guarantors"), the Lenders, Bankers Trust
Company and The Chase Manhattan Bank and NationsBank, N.A.,
incorporated by reference to Exhibit 99.2 of the Company's
Current Report on Form 8-K dated December 1, 1998.
</TABLE>

53
<PAGE>

<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- --------------------- ------------------------------------------------------------
<S> <C>
10.14* First Amendment to Second Amended and Restated Revolving
Credit and Guaranty Agreement dated November 3, 1998 among
Cornerstone Properties Inc. and Cornerstone Properties
Limited Partnership (the "Borrowers"), the subsidiaries of
the Borrowers (the "Guarantors"), the Lenders, Bankers Trust
Company and The Chase Manhattan Bank and NationsBank, N.A.

10.15 Amended and Restated Registration Rights and Voting
Agreement dated as of December 16, 1998 among PGGM, DIHC
and Cornerstone Properties Inc. incorporated by reference to
the Company's Annual Report on Form 10-K for the year ended
December 31, 1998.

10.16 Registration Rights and Lockup Agreement dated as of
December 16, 1998 by and among Cornerstone Properties Inc.
and the investors listed therein, incorporated by reference
to Annex B of the Company's definitive Proxy Statement on
Schedule 14A dated November 13, 1998.

10.17 Voting Agreement, dated February 11, 2000, by and among
Equity Office Properties Trust, EOP Operating Limited
Partnership, WCP Services, Inc. and Stichting Pensioenfonds
voor de Gezondheid, Gaestelijke en Meatschappelljke
Belangen, incorporated by reference to Exhibit 10.2 to the
Company's Current Report on Form 8-K dated February 16,
2000.

12.1* Statement of Computation of Earnings to Fixed Charges and
Preferred Stock Dividend Requirements.

21* List of Subsidiaries.

23* Consent of PricewaterhouseCoopers LLP.

27* For EDGAR filing purposes only, this report contains Exhibit
27, Financial Data Schedule.
</TABLE>

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

* Filed herewith.

54
<PAGE>
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)

/s/ JOHN S. MOODY
-----------------------------------------
DATED: March 22, 2000 John S. Moody, PRESIDENT & CEO
</TABLE>

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

<TABLE>
<C> <S>
/s/ WILLIAM WILSON III
------------------------------------------- Chairman of the Board and Director
William Wilson III

/s/ JOHN S. MOODY Chief Executive Officer, President and
------------------------------------------- Director
John S. Moody (Principal Executive Officer)

/s/ RODNEY C. DIMOCK
------------------------------------------- Executive Vice President and Director
Rodney C. Dimock

/s/ KEVIN P. MAHONEY Senior Vice President and Chief Financial
------------------------------------------- Officer (Principal Financial and Accounting
Kevin P. Mahoney Officer)

/s/ CECIL D. CONLEE
------------------------------------------- Director
Cecil D. Conlee

/s/ BLAKE EAGLE
------------------------------------------- Director
Blake Eagle

/s/ DR. KARL-LUDWIG HERMANN
------------------------------------------- Director
Dr. Karl-Ludwig Hermann

/s/ HANS C. MAUTNER
------------------------------------------- Director
Hans C. Mautner

/s/ DR. LUTZ MELLINGER
------------------------------------------- Director
Dr. Lutz Mellinger
</TABLE>

55
<PAGE>
<TABLE>
<C> <S>
------------------------------------------- Director
Craig R. Stapleton

/s/ MICHAEL J.G. TOPHAM
------------------------------------------- Director
Michael J.G. Topham

/s/ DICK VAN DEN BOS
------------------------------------------- Director
Dick van den Bos

/s/ JAN VAN DER VLIST
------------------------------------------- Director
Jan van der Vlist

/s/ DONALD G. FISHER
------------------------------------------- Director
Donald G. Fisher

/s/ RANDALL A. HACK
------------------------------------------- Director
Randall A. Hack
</TABLE>

DATED: March 22, 2000

56
<PAGE>
CORNERSTONE PROPERTIES INC.
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF DECEMBER 31, 1999, 1998
AND FOR THE YEARS ENDED
DECEMBER 31, 1999, 1998 AND 1997

F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors and Stockholders of
Cornerstone Properties Inc.

In our opinion, the consolidated financial statements listed in the index
appearing under Item 14(a)(i) of this Form 10-K present fairly, in all material
respects, the financial position of Cornerstone Properties Inc. and Subsidiaries
("Cornerstone") at December 31, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with auditing standards generally accepted in the
United States, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.

As discussed in Note 1 of the financial statements, on February 11, 2000,
Cornerstone announced a definitive plan of merger with Equity Office Properties
Trust.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP
New York, New York
March 3, 2000

F-2
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 1999 AND 1998

(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998
---------- ----------
<S> <C> <C>
ASSETS
Developments in progress:
Land...................................................... $ 46,132 $ 10,437
Development costs......................................... 17,000 2,519
Rental Property, at cost:
Land...................................................... 646,852 702,840
Buildings, leasehold interests and improvements........... 3,084,466 3,403,152
Deferred lease costs...................................... 157,015 143,188
---------- ----------
3,951,465 4,262,136
Less: Accumulated depreciation and amortization........... 290,998 286,664
---------- ----------
Total Development and Rental Property................. 3,660,467 3,975,472

Assets held for sale........................................ 62,185 77,568
Cash and cash equivalents................................... 19,679 61,869
Restricted cash............................................. 222,043 9,114
Investment in joint ventures................................ 31,725 31,500
Other deferred costs, net of accumulated amortization of
$7,092 and $999........................................... 42,655 47,807
Deferred tenant receivables................................. 77,243 53,489
Tenant and other receivables, net........................... 14,725 10,326
Other assets................................................ 39,506 14,839
---------- ----------
TOTAL ASSETS................................................ $4,170,228 $4,281,984
========== ==========
LIABILITIES

Long-term debt, inclusive of $16,149 and $25,031 of
unamortized premium....................................... $1,448,331 $1,532,474
Credit facility............................................. 329,000 465,000
Accrued interest............................................ 10,961 10,933
Accrued real estate taxes................................... 16,457 16,395
Accounts payable and accrued expenses....................... 45,006 51,454
Distributions payable....................................... -- 38,163
Unearned revenue and other liabilities...................... 40,881 23,890
---------- ----------
TOTAL LIABILITIES........................................... 1,890,636 2,138,309
========== ==========

MINORITY INTEREST
Minority interest in operating partnership.................. 284,566 283,388
Minority interest in joint ventures......................... 22,532 23,420
---------- ----------
TOTAL MINORITY INTEREST..................................... 307,098 306,808
========== ==========

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;
129,610,536 shares issued and 129,252,303 shares
outstanding............................................... -- --
Paid-in capital............................................. 1,808,943 1,788,567
Retained earnings........................................... 111,150 --
Accumulated other comprehensive income...................... 9,424 --
Deferred compensation....................................... (2,012) (1,700)
---------- ----------
1,977,505 1,836,867
Treasury stock, 358,233 shares, at cost..................... (5,011) --
---------- ----------
TOTAL STOCKHOLDERS' EQUITY.................................. 1,972,494 1,836,867
---------- ----------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY.................. $4,170,228 $4,281,984
========== ==========
</TABLE>

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

F-3
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
REVENUES
Office and parking rentals................................ $607,409 $338,515 $159,828
Earnings in joint ventures................................ 898 11,420 --
Interest and other income................................. 9,141 9,551 14,083
-------- -------- --------
TOTAL REVENUES.......................................... 617,448 359,486 173,911
-------- -------- --------

EXPENSES
Building operating expenses............................... 132,630 75,663 35,962
Real estate taxes......................................... 71,554 46,760 25,560
Interest expense.......................................... 137,759 67,533 33,977
Depreciation and amortization............................. 96,726 59,278 30,978
General and administrative................................ 27,006 12,939 7,564
-------- -------- --------
TOTAL EXPENSES.......................................... 465,675 262,173 134,041
-------- -------- --------
151,773 97,313 39,870
-------- -------- --------
OTHER INCOME (EXPENSES)
Gain (loss) on sale of real estate assets................. 131,034 (2,076) --
Net gain on interest rate swaps........................... -- -- 99
-------- -------- --------
TOTAL OTHER INCOME (EXPENSES)........................... 131,034 (2,076) 99
-------- -------- --------

MINORITY INTEREST
Minority interest in operating partnership................ (34,982) (2,850) --
Minority interest in joint ventures....................... (5,755) (4,619) (2,368)
-------- -------- --------
TOTAL MINORITY INTEREST................................. (40,737) (7,469) (2,368)
-------- -------- --------
Income before cumulative effect of a change in accounting
principle and extraordinary loss.......................... 242,070 87,768 37,601

Cumulative effect of a change in accounting principle....... (630) -- --
Extraordinary loss.......................................... (10,787) (4,303) (54)
-------- -------- --------
NET INCOME.................................................. $230,653 $ 83,465 $ 37,547
======== ======== ========

INCOME APPLICABLE TO PREFERRED STOCK........................ $ (3,500) $ (3,500) $(10,160)
-------- -------- --------

INCOME APPLICABLE TO COMMON STOCK........................... $227,153 $ 79,965 $ 27,387
======== ======== ========
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING
PRINCIPLE AND EXTRAORDINARY LOSS PER COMMON SHARE......... $ 1.85 $ 0.84 $ 0.63
======== ======== ========
CUMULATIVE EFFECT OF A CHANGE IN ACCOUNTING PRINCIPLE AND
EXTRAORDINARY LOSS PER COMMON SHARE....................... $ (0.09) $ (0.04) $ --
======== ======== ========

BASIC INCOME PER COMMON SHARE............................... $ 1.76 $ 0.80 $ 0.63
======== ======== ========

DILUTED INCOME PER COMMON SHARE............................. $ 1.74 $ 0.80 $ 0.63
======== ======== ========
</TABLE>

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

F-4
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998 1997
-------- -------- --------
<S> <C> <C> <C>
Net income.................................................. $230,653 $83,465 $37,547
======== ======= =======
OTHER COMPREHENSIVE INCOME:
Unrealized gain on investments............................ 3,911 -- --
Unrealized gain on interest rate swaps during the
period.................................................. 5,513 -- --
-------- ------- -------
Other comprehensive income................................ 9,424 -- --
-------- ------- -------

COMPREHENSIVE INCOME........................................ $240,077 $83,465 $37,547
======== ======= =======
</TABLE>

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

F-5
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
COMMON STOCK PREFERRED STOCK ACCUMULATED
------------------------ ---------------------- RETAINED OTHER
OUTSTANDING PAID-IN OUTSTANDING PAID-IN EARNINGS COMPREHENSIVE TREASURY
SHARES CAPITAL SHARES CAPITAL (DEFICIT) INCOME STOCK
----------- ---------- ----------- -------- --------- -------------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE, JANUARY 1, 1997...... 20,609,754 $ 160,577 3,030,303 $50,000 $(30,789) -- --

Common stock proceeds, net of
$17,204 in stock issuance
costs....................... 16,100,000 208,196 -- -- -- -- --
Preferred stock conversion.... 11,482,760 162,515 -- -- -- -- --
Dividend reinvestment, net of
$296 in stock issuance
costs....................... 696,013 10,808 -- -- -- -- --
PGGM stock.................... 34,185,500 547,000 -- -- -- -- --
Restricted stock grants....... 107,292 1,761 -- -- -- -- --
Restricted stock grant
vesting..................... -- -- -- -- -- -- --
Net income.................... -- -- -- -- 37,547 -- --
Option exercise............... 10,500 150 -- -- -- -- --
Preferred stock
distributions............... -- (3,402) -- -- (6,758) -- --
Common stock distributions
($1.04/shr)................. -- (39,418) -- -- -- -- --
----------- ---------- --------- ------- -------- ------ -------
BALANCE, DECEMBER 31, 1997.... 83,191,819 $1,048,187 3,030,303 $50,000 $ -- $ -- $ --

Common stock proceeds, net of
$14,463 in stock issuance
costs....................... 25,969,203 447,881 -- -- -- -- --
Dividend reinvestment, net of
$410 in stock issuance
costs....................... 397,404 6,294 -- -- -- -- --
Tower 56 residual purchase.... 307,692 5,500 -- -- -- -- --
Restricted stock grants....... 31,678 577 -- -- -- -- --
Restricted stock grant
vesting..................... -- -- -- -- -- -- --
Net income.................... -- -- -- -- 83,465 -- --
Minority adjustment........... -- 49,219 -- -- -- -- --
Preferred stock
distributions............... -- -- -- -- (3,500) -- --
Common stock distributions
($1.50/shr)................. -- (70,963) -- -- (79,965) -- --
One Memorial acquisition...... 3,428,571 60,000 -- -- -- -- --
Wilson Acquisition............ 14,884,417 241,872 -- -- -- -- --
----------- ---------- --------- ------- -------- ------ -------
BALANCE, DECEMBER 31, 1998.... 128,210,784 $1,788,567 3,030,303 $50,000 $ -- $ -- $ --

Stock issuance costs.......... -- (378) -- -- -- -- --
Restricted stock grants....... -- 1,760 -- -- -- -- --
Restricted stock grant
vesting..................... -- -- -- -- -- -- --
Net income.................... -- -- -- -- 230,653 -- --
Minority adjustment........... -- 1,464 -- -- -- -- --
Unrealized gain on
investments................. -- -- -- -- -- 3,911 --
Unrealized gain on swaps...... -- -- -- -- -- 5,513 --
DRIP.......................... 147,577 2,318 -- -- -- -- --
Options exercised............. 127,000 1,827 -- -- -- -- --
Unitholder redemption......... 1,125,175 13,385 -- -- -- -- --
Treasury stock................ (358,233) -- -- -- -- -- (5,011)
Preferred stock
distributions............... -- -- -- -- (3,500) -- --
Common stock distributions
($0.90/shr)................. -- -- -- -- (116,003) -- --
----------- ---------- --------- ------- -------- ------ -------
BALANCE, DECEMBER 31, 1999.... 129,252,303 $1,808,943 3,030,303 $50,000 $111,150 $9,424 $(5,011)
=========== ========== ========= ======= ======== ====== =======

DEFERRED
COMPENSATION TOTAL
------------- ----------
<S> <C> <C>
BALANCE, JANUARY 1, 1997...... $(1,248) $ 178,540
Common stock proceeds, net of
$17,204 in stock issuance
costs....................... -- 208,196
Preferred stock conversion.... -- 162,515
Dividend reinvestment, net of
$296 in stock issuance
costs....................... -- 10,808
PGGM stock.................... -- 547,000
Restricted stock grants....... (1,868) (107)
Restricted stock grant
vesting..................... 928 928
Net income.................... -- 37,547
Option exercise............... -- 150
Preferred stock
distributions............... -- (10,160)
Common stock distributions
($1.04/shr)................. -- (39,418)
------- ----------
BALANCE, DECEMBER 31, 1997.... $(2,188) $1,095,999
Common stock proceeds, net of
$14,463 in stock issuance
costs....................... -- 447,881
Dividend reinvestment, net of
$410 in stock issuance
costs....................... -- 6,294
Tower 56 residual purchase.... -- 5,500
Restricted stock grants....... (577) --
Restricted stock grant
vesting..................... 1,065 1,065
Net income.................... -- 83,465
Minority adjustment........... -- 49,219
Preferred stock
distributions............... -- (3,500)
Common stock distributions
($1.50/shr)................. -- (150,928)
One Memorial acquisition...... -- 60,000
Wilson Acquisition............ -- 241,872
------- ----------
BALANCE, DECEMBER 31, 1998.... $(1,700) $1,836,867
Stock issuance costs.......... -- (378)
Restricted stock grants....... (1,760) --
Restricted stock grant
vesting..................... 1,448 1,448
Net income.................... -- 230,653
Minority adjustment........... -- 1,464
Unrealized gain on
investments................. -- 3,911
Unrealized gain on swaps...... -- 5,513
DRIP.......................... -- 2,318
Options exercised............. -- 1,827
Unitholder redemption......... -- 13,385
Treasury stock................ -- (5,011)
Preferred stock
distributions............... -- (3,500)
Common stock distributions
($0.90/shr)................. -- (116,003)
------- ----------
BALANCE, DECEMBER 31, 1999.... $(2,012) $1,972,494
======= ==========
</TABLE>

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

F-6
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 1999, 1998 AND 1997

(DOLLAR AMOUNTS IN THOUSANDS)

<TABLE>
<CAPTION>
1999 1998 1997
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income................................................ $ 230,653 $ 83,465 $ 37,547
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation and amortization........................... 90,790 58,980 31,826
Deferred compensation amortization...................... 1,312 1,065 928
Net change in real estate joint ventures................ (225) 5,670 --
Cumulative effect of a change in accounting principle... 630 -- --
Net gain on interest rate swap.......................... -- -- (99)
Extraordinary loss...................................... 10,787 4,303 54
Unbilled rental revenue................................. (25,858) (13,712) (3,015)
Increase in accrued interest............................ 27 6,799 3,052
Minority interest share of income....................... 40,737 7,469 2,368
(Gain) loss on sale of real estate assets............... (131,034) 2,076 --
Increase in tenant and other receivables and other
assets................................................ (15,745) (6,833) (16,920)
Increase in accounts payable, accrued expenses and other
liabilities........................................... 21,431 33,515 10,181
--------- --------- ---------
Total adjustments....................................... (7,148) 99,332 28,375
--------- --------- ---------
Net cash provided by operating activities............... 223,505 182,797 65,922
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Additions to investment property.......................... (79,359) (797,181) (464,096)
Repayment of notes receivable............................. 134 1,518 1,259
Other investments......................................... (5,000) (41,893)
Investments in real estate joint ventures................. -- (31,391) --
Proceeds from sale of real estate assets net of amounts in
escrow.................................................. 136,713 45,865 --
--------- --------- ---------
Net cash provided by (used in) investing activities..... 52,488 (823,082) (462,837)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from common stock offering....................... -- 462,344 225,400
Purchase of treasury shares............................... (4,889) -- --
Borrowings under mortgage loans........................... 455,000 92,377 --
Borrowings under credit facility.......................... 130,000 567,500 187,000
Repayments under credit facility.......................... (266,000) (289,500) --
Repayment of term loan.................................... -- -- (32,500)
Repayments under mortgage loans........................... (432,958) (3,426) (1,094)
Proceeds from dividend reinvestment plan.................. 2,318 6,704 11,104
Debt prepayment costs..................................... (14,898) (1,762) (216)
(Increase) decrease in restricted cash.................... (2,542) (7,211) 2,524
Stock and debt issuance costs............................. (2,758) (20,813) (20,715)
Options exercised......................................... 1,827 -- --
Unitholder redemptions.................................... (1,169) --
Distributions to minority partners........................ (28,086) (12,524) (2,717)
Distributions to preferred stockholders................... (3,500) (3,500) (10,160)
Distributions to common stockholders...................... (150,528) (112,765) (51,784)
--------- --------- ---------
Net cash (used in) provided by financing activities..... (318,183) 677,424 306,842
--------- --------- ---------
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS.......... (42,190) 37,139 (90,073)
CASH AND CASH EQUIVALENTS, beginning of year.............. 61,869 24,730 114,803
--------- --------- ---------
CASH AND CASH EQUIVALENTS, end of year.................... $ 19,679 $ 61,869 $ 24,730
========= ========= =========
</TABLE>

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

F-7
<PAGE>
CORNERSTONE PROPERTIES INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998 AND 1997

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 83 Class A office
buildings comprising approximately 17 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 nine major
metropolitan areas throughout the United States: Atlanta, Boston, suburban
Chicago, Minneapolis, New York City, San Francisco Bay Area, Seattle, Southern
California and Washington, D.C. and surrounding suburbs. The Company's strategy
is to own and develop 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. The Company
also provides property management, leasing, development and tenant improvement
services to third parties on a fee basis through WCP Services, Inc., a taxable
corporate subsidiary in which the Company owns 95% of the equity, but only 1% of
the voting common stock. In January 1998, Cornerstone converted its corporate
structure into an umbrella limited partnership REIT ("UPREIT"). Under the UPREIT
structure, Cornerstone owns all of its properties and conducts all of its
business through Cornerstone Properties Limited Partnership, a Delaware limited
partnership (the "Operating Partnership"), of which the Company is the sole
general partner. As of December 31, 1999, Cornerstone owned approximately 87.1%
of the common units of partnership interest ("UPREIT Units") in the Operating
Partnership.

On February 11, 2000, the Company announced that it had entered into an
agreement and plan of merger with Equity Office Properties Trust ("EOP") (the
"EOP Merger"). The merger agreement provides for a merger of Cornerstone with
and into EOP and a merger of the Operating Partnership with and into EOP
Operating Limited Partnership. In the mergers, holders of common stock of
Cornerstone and holders of Units in the Operating Partnership shall be entitled
to elect to receive, for each share or unit, as the case may be, either 0.7009
of a share of beneficial interest of EOP (or, in the case of the Cornerstone
Units, 0.7009 of a Class A Unit of EOP Operating Limited Partnership), or $18.00
per share (or per Unit, as the case may be) in cash, subject to pro ration as
provided in the merger agreement. Each share of 7% Cumulative Convertible
Preferred Stock, liquidation preference $16.50 per share, of Cornerstone shall
be converted into the right to receive $18.00, plus accrued and unpaid
dividends, in cash. For U.S. federal income tax purposes, the merger is expected
to be tax-free to Cornerstone stockholders who are U.S. persons and who receive
EOP shares in the merger, except that any such stockholder who receives cash in
addition to EOP shares generally will recognize gain (but not loss) in an amount
equal to the amount of cash received in the merger, or, if less, the excess of
the fair market value of the EOP shares and cash received in the merger over the
stockholder's basis in the Cornerstone common stock exchanged in the merger. The
merger is also expected in most cases to be tax-free to Cornerstone stockholders
who are non-U.S. persons, although certain non-U.S. stockholders may be subject
to U.S. tax under the provisions of the Foreign Investment in Real Property Tax
Act. The mergers are subject to customary closing conditions, including the
approval of the merger by the shareholders of EOP and the stockholders of
Cornerstone and the approval of the partnership merger, to the extent necessary,
by the partners of EOP Operating Limited Partnership and the Operating
Partnership.

F-8
<PAGE>
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"); 191 Finance Associates, L.P. ("191
Finance"); Avenue Associates Limited Partnership ("Market Square"); and 120
Montgomery Associates, LLC ("120 Montgomery"). The Company's investments in the
One Post Property and WCP Services, Inc. are accounted for as equity investments
(see Note 4). All significant intercompany balances and transactions have been
eliminated in consolidation.

INVESTMENT PROPERTY

The costs of the buildings, garages, leasehold interests and improvements
are being depreciated using the straight-line method over their estimated useful
lives, ranging from 20 years for electrical and mechanical installations to
40 years for structural components. Tenant improvements are being amortized over
the terms of the related leases.

Investment properties are carried at cost less accumulated depreciation.
Whenever events or changes in circumstances indicate that the carrying value of
an asset may not be recoverable (such as a significant adverse action by a
regulator, a significant physical change in the property or significant changes
in market conditions), the Company's policy is to assess any impairment in value
by making a comparison of the current and projected cash flows of each property
over its remaining useful life (undiscounted and without interest charges) to
the carrying amount of each property. Such carrying amount would be adjusted, if
necessary, to estimated fair value to reflect the impairment in value of the
property. No significant adjustments have been made in the accompanying
financial statements.

Costs directly related to the acquisition and development of rental
properties are capitalized. Capitalized development costs include interest,
property taxes, insurance and other project costs incurred during the period of
construction. Ordinary repairs and maintenance are expensed as incurred; major
replacements and betterments, which improve or extend the life of the asset, are
capitalized and depreciated over their estimated useful lives.

ASSETS HELD FOR SALE

Included in Assets Held for Sale at December 31, 1999 are four properties,
which are expected to be sold by the Company within the next year. The
Properties are valued at approximately $62.2 million, the lower of the carrying
amount or the fair value less estimated costs to sell. For the year ended
December 31, 1999, the fair value less estimated costs to sell exceeds the
carrying amount for each of these properties and therefore, the Company has not
recorded a write down on these assets. The Company discontinues the recognition
of depreciation on the assets when the property is considered held for sale.

CASH AND CASH EQUIVALENTS

For purposes of reporting cash flows, cash and cash equivalents include
investments with original maturities of three months or less from the date of
purchase. At December 31, 1999 and 1998, Cornerstone had on deposit with major
financial institutions substantially all of its cash and cash equivalents which
balances at times exceed federally insurable limits. Cornerstone believes it
mitigates its risk by investing in or through major financial institutions.
Recoverability of investments is dependent upon the performance of the issuer.

F-9
<PAGE>
DEFERRED LEASE COSTS

As an inducement to execute a lease, incentives are sometimes offered which
may include cash and/or other allowances. These incentives and other lease
costs, such as commissions, which are directly related to specific leases, are
deferred and amortized over the terms of the related leases.

OTHER DEFERRED COSTS

Costs incurred in the underwriting and issuance of long-term debt 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 adopted EITF 97-11 and in accordance therewith, the Company expenses all
internal acquisition costs.

Included in Other Assets is the Company's $1.5 million equity investment in
Allied Riser Communications Corp. ("ARCC") and its $3.5 million equity
investment in Cypress Communications, Inc. ("CYCO"). ARCC and CYCO are providers
of voice, video and data telecommunications services. As part of the terms of
the agreements with both ARCC and CYCO, the Company received warrants for shares
of common stock by providing ARCC and CYCO access to certain of the Company's
buildings. As such, the value of the warrants received from ARCC and CYCO of
$5.1 million and $2.1 million, respectively, is included in Other Assets. Per
the applicable requirements of Statement of Financial Accounting Standards
No. 115 "Accounting for Certain Investments in Debt and Equity Securities"
("SFAS 115"), the Company recorded an unrealized gain on its total investment in
ARCC as of December 31, 1999 of $3.9 million. A corresponding adjustment was
posted to a separate component of stockholder's equity through Other
Comprehensive Income. As of December 31, 1999, CYCO was not publicly traded and
did not fall within in the scope of SFAS 115.

MINORITY INTEREST

Minority interest in the Operating Partnership relates to the interest in
the Operating Partnership that the Company does not own, which as of
December 31, 1999 amounted to 12.9%. The Company allocates income to the
minority interest in the Operating Partnership based on the weighted-average
percentage ownership in the Operating Partnership through the year. Persons who
contributed assets to the Operating Partnership received UPREIT Units, shares of
Cornerstone's common stock (the "Common Stock"), cash or a combination thereof.
At the request of a unitholder, the Company will be obligated to redeem each
UPREIT Unit held by such unitholder for one share of Common Stock or, at the
option of the Company, cash equal to the fair market value of one share of
Common Stock at the time of redemption. Such redemptions will cause the
Company's percentage ownership in the Operating Partnership to increase. As of
December 31, 1999, the number of issued and outstanding UPREIT Units held by
unitholders other than the Company was 19,131,785 and as of such date, 1,125,175
UPREIT Units have been redeemed for shares of Common Stock on a one-for-one
basis and 76,647 UPREIT Units have been redeemed for cash.

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, 191 Finance, Market Square and 120
Montgomery. Debit balances in certain of these capital accounts originated

F-10
<PAGE>
through special cash distributions in excess of the partner's share of income in
accordance with certain provisions of the respective partnership and joint
venture agreements. Realizability of the debit balances is continually monitored
by calculating pro forma sales proceeds under the respective agreements.

TREASURY STOCK

As of December 31, 1999, the Company reacquired 358,233 shares of Common
Stock, which was accounted for using the cost method. Of these shares, 347,400
shares were acquired under the Repurchase Program (see Note 8).

REVENUE RECOGNITION

Rental revenue is recognized ratably as earned over the terms of the leases.
Deferred tenant receivables result from rental revenues which have been earned
but will be received in future periods as a result of rent concessions provided
to tenants and scheduled future rent increases. Deferred tenant receivables were
approximately $77,243,000 and $53,489,000 at December 31, 1999 and 1998,
respectively. Expense reimbursement and escalation income for the years ended
December 31, 1999, 1998 and 1997 was approximately $101,595,000, $77,821,000 and
$36,990,000, respectively.

An allowance for doubtful accounts of approximately $3,803,000 and $253,000
has been recorded at December 31, 1999 and 1998, respectively, relating to
tenant and other receivables. Bad debt expense totaled approximately $3,694,000,
$232,000 and $221,000 during 1999, 1998, and 1997, respectively. The Company's
policy is to reserve against all trade receivables greater than 90 days past
due.

INTEREST RATE SWAP AGREEMENTS

The Company uses interest rate swaps to effectively fix the interest rates
on certain floating-rate debt. Specific types of loans and amounts that are
hedged are determined based on prevailing market conditions and the current
shape of the yield curve. The specific terms and notional amount of the swaps
are determined based on management's assessment of future interest rates, as
well as short-term strategic initiatives.

During 1999, the Company entered into and subsequently amended swap
agreements 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 (as
defined hereinafter). At December 31, 1999, the Company recorded an unrealized
gain of $5,513,000 in Other Assets with a corresponding adjustment posted to a
separate component of stockholder's equity through Other Comprehensive Income as
defined in Statement of Financial Accounting Standards No. 130. Based on the
expiration of these instruments, the unrealized gain is expected to be
reclassified to earnings during the next twelve months. These swaps are
considered hedges for federal income tax purposes.

FEDERAL INCOME TAXES

No provision for United States Federal income taxes has been made in the
accompanying financial statements. Cornerstone has elected to be taxed as a REIT
under Sections 856-859 of the United States Internal Revenue Code (the "Code").
Under these sections of the Code, Cornerstone is permitted to deduct dividends
paid to stockholders in computing its taxable income. All taxable earnings and
profits of Cornerstone since inception have been distributed to the
stockholders.

RECLASSIFICATIONS

Certain prior year amounts have been reclassified to conform to the 1999
financial statement presentation.

F-11
<PAGE>
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 in 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.

ESTIMATES AND RISKS

The preparation of financial statements in conformity with generally
accepted accounting principles ("GAAP") requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. The most significant risks, estimates and assumptions are
related to the recoverability and depreciable lives of investment property, the
recoverability of deferred tenant receivables and the qualification of the
Company as a REIT. Actual results could differ from those estimates.

F-12
<PAGE>
2. PROPERTIES

The following table summarizes Cornerstone's interest in real estate
investments at December 31, 1999:

<TABLE>
<CAPTION>
MARKET NAME TOTAL RENTABLE CORNERSTONE
PROPERTY SQUARE FEET INTEREST (A) YEAR CONSTRUCTED LEASED 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% C
222 Berkeley Street......................... 530,844 91.5% 1991 100% C
125 Summer Street........................... 463,691 100.0% 1989 74%
One Memorial Drive.......................... 352,764 100.0% 1985 100% D
---------- ---
MARKET TOTAL................................ 2,884,826 96%

SAN MATEO COUNTY, CALIFORNIA
Bayhill (4 buildings)....................... 514,255 100.0% 1982-1987 96% E
Peninsula Office Park (7 buildings)......... 492,044 100.0% 1971-1998 100% 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 99% E
---------- ---
MARKET TOTAL................................ 1,903,308 99%

ATLANTA, GEORGIA
191 Peachtree Street........................ 1,215,288 80.0% 1991 98% C,F
200 Galleria................................ 432,698 100.0% 1985 98% C
---------- ---
MARKET TOTAL................................ 1,647,986 98%

EAST BAY, CALIFORNIA
Corporate Centre (2 buildings).............. 329,348 100.0% 1985-1987 96% E
ADP Plaza (2 buildings)..................... 300,308 100.0% 1987-1989 95% E
PeopleSoft Plaza............................ 277,562 100.0% 1984 100% E
Norris Tech Center (3 buildings)............ 260,513 100.0% 1984-1990 100% E
Golden Bear Center.......................... 160,587 100.0% 1986 99% E
2700 Ygnacio Valley Road.................... 103,214 100.0% 1984 99% E
Park Plaza.................................. 87,040 100.0% 1986 100% E
1600 South Main............................. 83,277 100.0% 1983 98% E
---------- ---
MARKET TOTAL................................ 1,601,849 98%
</TABLE>

F-13
<PAGE>

<TABLE>
<CAPTION>
MARKET NAME TOTAL RENTABLE CORNERSTONE
PROPERTY SQUARE FEET INTEREST (A) YEAR CONSTRUCTED LEASED NOTES
- ----------- -------------- ------------ ---------------- -------- --------
<S> <C> <C> <C> <C> <C>
SEATTLE, WASHINGTON
Washington Mutual Tower (3 buildings)...... 1,154,560 50.0% 1988 98% G
110 Atrium Place........................... 215,172 100.0% 1981 100% E
Island Corporate Center.................... 100,009 100.0% 1987 97% E
---------- ----
MARKET TOTAL............................... 1,469,741 98%

SANTA CLARA COUNTY, CALIFORNIA
Pruneyard Office (3 buildings)............. 354,629 100.0% 1971-1999 99% E,H
10 Almaden................................. 294,809 100.0% 1989 100% E
Pruneyard Shopping Center.................. 252,210 100.0% 1970s 90% E
Embarcadero Place (4 buildings)............ 192,081 100.0% 1984 100% E
Pruneyard Inn.............................. 94,500 100.0% 1989 N/A E,I
---------- ----
MARKET TOTAL............................... 1,188,229 98%

SAN FRANCISCO, CALIFORNIA
120 Montgomery Street...................... 420,310 66.7% 1955 95% E
One Post................................... 391,450 50.0% 1969 99% E
201 California Street...................... 240,230 100.0% 1980 96% J
188 Embarcadero............................ 85,183 100.0% 1985 99% E
---------- ----
MARKET TOTAL............................... 1,137,173 97%

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% C,L
99 Canal Center............................ 137,945 100.0% 1986 100% C
TransPotomac Plaza 5....................... 96,392 100.0% 1983 100% C
11 Canal Center............................ 70,365 100.0% 1986 98% C
---------- ----
MARKET TOTAL............................... 993,411 99%

SUBURBAN CHICAGO, ILLINOIS
Corporate 500 Centre (4 buildings)......... 679,039 100.0% 1986/1990 99% M
One Lincoln Centre......................... 297,040 100.0% 1986 89%
---------- ----
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 100% E
Commerce Park.............................. 94,367 100.0% 1977 79% E,O
429 Santa Monica........................... 83,243 100.0% 1982 88% E
---------- ----
MARKET TOTAL............................... 848,112 95%

ORANGE COUNTY, CALIFORNIA
Bixby Ranch................................ 277,289 100.0% 1987 98% E
18301 Von Karman........................... 219,508 100.0% 1991 88% E
2677 North Main............................ 213,318 100.0% 1987 94% E
---------- ----
MARKET TOTAL............................... 710,115 94%
</TABLE>

F-14
<PAGE>

NEW YORK CITY, NEW YORK
527 Madison Avenue......................... 215,332 100.0% 1986 100%
Tower 56................................... 163,633 100.0% 1983 99% P
---------- ----
MARKET TOTAL............................... 378,965 99%

LOS ANGELES, CALIFORNIA
700 North Brand............................ 202,531 100.0% 1981 94% E
Warner Park Center......................... 57,366 100.0% 1986 100% E
---------- ----
MARKET TOTAL............................... 259,897 95%

CONEJO VALLEY (VENTURA), CALIFORNIA
Westlake Spectrum (2 buildings)............ 118,990 100.0% 1990 97% E
Agoura Hills............................... 115,208 100.0% 1987 100% E
---------- ----
MARKET TOTAL............................... 234,198 99%

OTHER REGIONS
U.S. West (Murray, Utah)................... 136,608 100.0% 1985 76% E
Exposition Centre (Sacramento,
California).............................. 72,971 100.0% 1984 70% E
---------- ----
MARKET TOTAL............................... 209,579 74%

TOTAL PORTFOLIO............................ 17,981,409 97%
---------- ----
Minority Interest Adjustment (Q)........... (728,307)
----------
CORNERSTONE PORTFOLIO...................... 17,253,102 96%
====
Adjustment For Pruneyard Inn............... (94,500)
----------
CORNERSTONE OFFICE PORTFOLIO............... 17,158,602
==========
</TABLE>

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

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

(B) On December 31, 1997, the Company purchased the second mortgage on Sixty
State Street. The mortgage is a cash flow mortgage through which all the
economic benefits/risks (subject to the first mortgage) inure to the
Company. The Company controls all major decisions regarding management and
leasing. The total purchase price for the second mortgage was
$131.5 million 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.

F-15
<PAGE>
from the Company's initial public offering in April 1997 and $54.0 million
from its Revolving Credit Facility. The Company has since sold the asset in
Charlotte as well as the undeveloped parcel of land in Chicago.

(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 1999, the partner in
the transaction, CH Associates, Ltd., received an annual Incentive
Distribution (as defined) of $250,000, with the Company receiving the
remainder of the cash flow of the Property.

(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.

F-16
<PAGE>
$17.50 per unit and approximately $62.9 million of assumed debt (recorded at
$64.6 million for GAAP purposes).

(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.

(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.

During 1999, the Company sold 13 properties for gross proceeds of
$495,705,000 resulting in a net gain of $131,033,847.

F-17
<PAGE>
The future minimum lease payments to be received by the Company under
noncancellable operating leases as of December 31, 1999 are as follows (Dollar
amounts in thousands):

<TABLE>
<S> <C>
2000........................................................ $ 396,159
2001........................................................ 373,079
2002........................................................ 327,096
2003........................................................ 269,223
2004........................................................ 211,497
Thereafter.................................................. 737,345
----------
TOTAL....................................................... $2,314,399
==========
</TABLE>

3. RESTRICTED CASH

Restricted cash includes security deposits for some of the Company's office
properties and escrow and reserve funds for real estate taxes, property
insurance, capital improvements, tenant improvements and leasing costs. These
funds were established pursuant to certain mortgage and construction financing
arrangements.

The proceeds from the sales of certain properties during 1999 totaling
approximately $211.5 million, are included in restricted cash pursuant to the
terms of Section 1031 of the Internal Revenue Code of 1986, as amended,
"Exchange of property held for productive use or investment."

4. INVESTMENT IN REAL ESTATE JOINT VENTURES

Investment in real estate joint ventures represents the Company's two
investments that are accounted for using the equity method of accounting. The
first investment is the Company's 50.0% interest in a co-tenancy 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.

F-18
<PAGE>
5. LONG-TERM DEBT

<TABLE>
<CAPTION>
PROPERTY
- --------
FIXED RATE AMORTIZATION INTEREST RATE (A) MATURITY DATE 12/31/99 12/31/98
- ---------- ------------- ----------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
TransPotomac Plaza (B).............. Interest Only 7.28% Oct-2000 65,000 65,000
West Wilshire Office and Medical.... 25 year 6.90% Jan-2002 16,926 17,301
Searise Office Tower................ 25 year 6.90% Jan-2002 11,607 11,864
Exposition Centre................... 25 year 6.90% May-2002 5,081 5,200
Wilshire Palisades.................. 22 year 6.70% Jul-2002 29,047 29,902
110 Atrium Place.................... 30 year 6.90% Mar-2004 21,517 21,838
527 Madison Avenue and
One Lincoln Centre (B)............ Interest only 7.47% Oct-2004 65,000 65,000
Sixty State Street.................. 30 year 6.84% Jan-2005 85,420 87,627
Island Corporate Center............. 30 year 6.90% Apr-2005 13,170 13,294
Washington Mutual Tower............. Interest only 7.53% Nov-2005 79,100 79,100
Norwest Center...................... Interest only 8.74% Dec-2005 110,000 110,000
Agoura Hills........................ 25 year 6.90% Dec-2005 12,003 12,328
Janss Court......................... 30 year 6.90% Dec-2005 18,357 18,723
Bayhill 4,5,6 & 7................... 25 year 6.90% Dec-2006 57,764 59,071
Market Square (C) and
200 Galleria (B).................. Interest only 7.54% Oct-2007 120,000 120,000
Corporate 500 Centre................ 25 year 6.66% Nov-2008 88,424 89,765
188 Embarcadero (D)................. 25 year 7.26% Aug-2009 15,606 9,135
Centerside II (D)................... 25 year 7.26% Aug-2009 24,254 13,818
700 North Brand (D)................. 25 year 7.26% Aug-2009 26,938 18,108
Golden Bear Center (D).............. 25 year 7.26% Aug-2009 20,477 15,753
Bixby Ranch (D)..................... 25 year 7.26% Aug-2009 28,528 20,243
One Memorial Drive (D).............. 25 year 7.26% Aug-2009 63,119 --
125 Summer Street (E)............... 25 year 7.23% Nov-2009 78,844 50,000
Tower 56 (E)........................ 25 year 7.23% Nov-2009 25,024 17,548
Peninsula Office
Park 1,3,4,5,6,8 & 9 (E).......... 25 year 7.23% Nov-2009 88,128 60,242
Embarcadero Place (E)............... 25 year 7.23% Nov-2009 38,149 26,061
201 California Street (E)........... 25 year 7.23% Nov-2009 44,504 33,071
---------- ----------
TOTAL FIXED RATE DEBT............. 7.31%(F) 7.1 yrs(F) 1,251,987 1,069,992
---------- ----------

VARIABLE RATE
- ------------------------------------
Seaport Centre (G).................. Interest only LIBOR plus 1.50% Dec-2000 58,000 58,000
The Pruneyard....................... 24 year LIBOR plus 1.50% Jul-2000 60,947 49,384
Convertible Promissory Note
due 2001 (H)...................... Interest only 8.11% max(I) Jan-2001 12,926 12,926
120 Montgomery Street............... 24 year LIBOR plus 1.40% Nov-2002 48,160 46,930
Norris Tech Center.................. 25 year LIBOR plus 1.65% Dec-2003 16,066 16,392
Other loans......................... Various Various Various 245 597
---------- ----------
TOTAL VARIABLE RATE DEBT.......... 7.40%(F) 1.5 yrs(F) 196,344 184,229
---------- ----------
</TABLE>

F-19
<PAGE>
<TABLE>
<CAPTION>
PROPERTY
- --------
REPAID DEBT AMORTIZATION INTEREST RATE (A) MATURITY DATE 12/31/99 12/31/98
- ----------- ------------- ----------------- ------------- ---------- ----------
<S> <C> <C> <C> <C> <C>
18301 Von Karman (J)................ -- -- -- -- 10,647
1600 South Main (J)................. -- -- -- -- 5,038
Biltmore Lakes (J).................. -- -- -- -- 11,468
Belmont Shores (J).................. -- -- -- -- 9,839
2677 North Main (J)................. -- -- -- -- 10,774
2700 Ygnacio Valley Road (J)........ -- -- -- -- 5,035
Westlake Spectrum (J)............... -- -- -- -- 3,993
Park Plaza (J)...................... -- -- -- -- 4,940
Warner Park Center (J).............. -- -- -- -- 5,213
429 Santa Monica (J)................ -- -- -- -- 10,176
Crossroads (J)...................... -- -- -- -- 7,339
Westlake Spectrum II (J)............ -- -- -- -- 5,284
Two ADP Plaza (K)................... -- -- -- -- 13,400
Two Corporate Centre (K)............ -- -- -- -- 18,600
One & Two Gateway (L)............... -- -- -- -- 8,679
Scottsdale Centre (L)............... -- -- -- -- 7,745
66 Bovet (L)........................ -- -- -- -- 3,939
One Norwest Center (M).............. -- -- -- -- 98,252
1300 South El Camino (L)............ -- -- -- -- 4,007
10 Almaden (N)...................... -- -- -- -- 33,885
---------- ----------
TOTAL REPAID DEBT................. -- 278,253
---------- ----------
Total Debt.......................... 7.32%(F) 6.4 yrs(F) $1,448,331 $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 collateral for this loan is a pledge of the $181.0 million first
mortgage loan on Market Square that the Company purchased from PGGM.

(E) During October 1999 the Company restructured approximately $219.9 million of
individual property-related debt with Northwestern Mutual Life Insurance
Company. The restructuring involved retiring the individual property-related
debt and creating a single $275.0 million term loan which is cross-
collateralized by six of the original seven properties. The loan has a ten
year term and bears interest at 7.23%. Upon closing the loan, the lien on 10
Almaden was released and the property was added to Cornerstone's
unencumbered pool.

(F) Weighted-average interest rate and maturity of the Company's long-term debt.

(I) Lesser of 30-day LIBOR plus 0.5% or 8.11%.

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

F-20
<PAGE>
(K) On January 4, 1999, in connection with the Wilson Acquisition, the Company
prepaid the notes on Two ADP Plaza and Two Corporate Centre.

(L) These notes were prepaid in conjunction with the sale of these properties.

(M) The note was assumed by the purchaser as of the date of closing, in
conjunction with the sale of this property during the fourth quarter.

The combined aggregate amount of maturities for all long-term borrowings for
2000 through 2004 are $183,947,000, $12,926,000, $110,821,000, $16,066,000 and
$86,517,000, respectively.

Since most of the long-term debt is property-related, there are restrictive
covenants that limit the total amount of indebtedness that can be placed on
individual properties.

6. CREDIT FACILITY

The Company has a $550.0 million Revolving Credit Facility with a syndicate
of 17 banks led by Deutsche Bank, The Chase Manhattan Bank and Bank of America
for acquisitions and general working capital purposes as well as the issuance of
letters of credit (the "Revolving Credit Facility"). The interest rate on the
facility depends on the Company's ratio of total debt to asset value (as
defined) at the time of borrowing and will be at a spread of 1.10% to 1.40% over
the applicable LIBOR or Prime Rate at the borrower's option. The letters of
credit will be priced at the applicable Eurodollar credit spread. The Revolving
Credit Facility expires on November 3, 2001. As of December 31, 1999,
$329.0 million of the facility was outstanding at a rate of approximately 8.0%.
Of this amount, approximately $250.0 million is fixed with interest rate swaps,
which effectively fix the rate at 6.47%. Beginning January 2000, the rate will
be reduced to 5.41% through the expiration of the swaps in December 2000. 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 55.0%; (iii) the ratio of adjusted EBITDA to interest
expense may not be less than 2.00 to 1.00 through July 1, 1999 and 2.25 to 1.00
thereafter; (iv) the fixed charge coverage ratio may not be less than 1.75 to
1.00; and (v) the ratio of total property asset value (as defined) to secured
indebtedness may not be less than 2.22 to 1.00. The above terms reflect an
amendment to the Revolving Credit Facility that occurred during 1999. The
amendment allowed the Company temporarily to increase its leverage from 55.0% to
60.0% in (ii) above for a short period, which has since expired. The Company
also increased its ability to enter into mortgage debt under (v) above by
decreasing the required ratio from 2.5 to 1.00 to 2.22 to 1.00.

7. 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 adverse effect on the financial position, results of
operations or cash flows of the Company.

F-21
<PAGE>
8. 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.

On December 9, 1999, the Company's Board of Directors approved a stock
repurchase program ("Repurchase Program") under which the Company is permitted
to purchase up to $100.0 million of the Company's outstanding Common Stock. The
Company may make periodic purchases on or prior to December 31, 2000 using
available working capital on the open market at prevailing prices or in
privately negotiated transactions. As of December 31, 1999, the Company
repurchased 347,400 shares of its outstanding Common Stock for an aggregate cost
of approximately $4.9 million. The Repurchase Program has been discontinued as a
result of the merger with EOP.

The following tables summarize the stock options and restricted stock grants
for certain officers of the Company as of December 31, 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 $14.30 33.3%/yr, 10yr term 75,000 0 562,500
October, 1995...................... 150,000 $14.30 33.3%/yr, 10yr term 10,500 0 139,500
March, 1997........................ 880,000 $14.50 33.3%/yr, 10yr term 52,000 0 534,666
November, 1997..................... 70,000 $18.44 33.3%/yr, 10yr term 0 0 46,667
February, 1998..................... 70,000 $18.13 33.3%/yr, 10yr term 0 46,667 23,333
February, 1998..................... 595,000 $18.25 33.3%/yr, 10yr term 0 26,668 198,333
March, 1998........................ 200,000 $18.25 33.3%/yr, 10yr term 0 133,334 66,666
December, 1998..................... 3,000,000 $17.25 33.3%/yr, 10yr term 0 34,533 978,800
January, 1999...................... 20,000 $17.25 33.3%/yr, 10yr term 0 0 0
February, 1999..................... 10,000 $17.25 33.3%/yr, 10yr term 0 10,000 0
June, 1999......................... 10,000 $17.25 33.3%/yr, 10yr term 0 0 0
</TABLE>

The weighted average fair value of options granted during 1999, 1998 and
1997 was $0.33 per share, $0.28 per share, and $2.00 per share, respectively.
The weighted average fair value of options exercised during 1999 and 1997 was
$4.55 and $2.45, respectively. There were no options exercised during 1998. The
weighted average life of options outstanding at December 31, 1999 was
approximately 8.1 years.

F-22
<PAGE>
RESTRICTED STOCK GRANTS
<TABLE>
<CAPTION>
VALUE AT GRANT SHARES INITIALLY SHARES FORFEITED SHARES OUTSTANDING SHARES VESTED
DATE OF GRANT DATE (PER SHARE) GRANTED (NO. OF SHARES) (NO. OF SHARES) (NO. OF SHARES) (NO. OF SHARES)
- ------------- ---------------- ----------------------- ---------------- ------------------ ---------------
<S> <C> <C> <C> <C> <C>
August, 1995........... $14.30 186,713 19,091 167,622 89,396
March, 1997............ $16.40 100,000 0 100,000 26,666
November, 1997......... $18.44 12,500 0 12,500 3,333
March, 1998............ $18.13 12,500 10,833 1,667 1,667
March, 1998............ $18.25 19,178 0 19,178 19,178
February, 1999......... $15.50 113,500 1,700 111,800 1,400

<CAPTION>
VESTING (A)
DATE OF GRANT SEE NOTES
- ------------- -----------
<S> <C>
August, 1995........... (B)
March, 1997............ (C)
November, 1997......... (D)
March, 1998............ (E)
March, 1998............ (F)
February, 1999......... (G)
</TABLE>

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

(A) Deferred compensation of approximately $5,600,000 is being amortized
according to the respective amortization schedule for each vesting period
noted below, with the unamortized balance shown as a deduction from
stockholders' equity. Regular distributions are paid on restricted stock.

(B) 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.

(C) 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.

(D) 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.

(E) 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.

(F) The initial grant was to vest with respect to 13.333% on March 15, 1999,
2000, 2001, 2002 and with respect to 46.668% on March 15, 2003. Pursuant to
the terms of a separation agreement, the vesting with respect to 16,621
shares was accelerated to fully vest on December 31, 1999.

(G) The grant will fully vest on February 1, 2004. Pursuant to the terms of
certain separation agreements, the vesting with respect to 1,400 shares was
accelerated to fully vest on July 1, 1999.

The Company has adopted the disclosure-only provision of Statement of
Financial Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
("SFAS 123"). Accordingly, no compensation cost has been recognized for the
options described above since the exercise price equaled the fair value at the
grant date. Had compensation cost for these options been determined based on the
fair value at the grant date consistent with the provisions of SFAS 123, the
Company's net income and net income per common share would have been reduced to
the following pro forma amounts (Dollar amounts in thousands, except per share
amounts):

<TABLE>
<CAPTION>
BASIC NET DILUTED NET
INCOME PER INCOME PER
NET INCOME COMMON SHARE COMMON SHARE
---------- ------------ ------------
<S> <C> <C> <C>
Year ended December 31, 1999........... $229,622 $ 1.76 $ 1.73
Year ended December 31, 1998........... $ 81,561 $ 0.78 $ 0.78
Year ended December 31, 1997........... $ 36,887 $ 0.61 $ 0.61
</TABLE>

F-23
<PAGE>
The Company has computed the value of all stock options using the
Black-Scholes option pricing model with the following weighted average
assumptions:

<TABLE>
<CAPTION>
ASSUMPTIONS 1999 1998 1997
- ----------- --------- ----------- -----------
<S> <C> <C> <C>
Risk-free interest rate................ 5.31% 5.31% 6.56%
Assumed dividend yield................. 7.50% 7.50% 7.50%
Expected term.......................... 6 years 6 years 6 years
Assumed volatility..................... 10.00% 10.00% 10.00%
</TABLE>

9. STOCKHOLDERS' AND UNITHOLDERS' DISTRIBUTIONS

On December 7, 1998, in connection with the Wilson Acquisition, the Company
declared a distribution of $0.15 per share/unit to Common Stockholders and
Unitholders of record as of December 15, 1998 and a distribution of $0.15 per
share/unit to Common Stockholders and Unitholders of record as of January 29,
1999. Both distributions were paid on February 26, 1999. A distribution of $0.30
per share/unit 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. A
distribution of $0.30 per share/unit was declared for the third quarter of 1999
and paid on August 31, 1999, to Common Stockholders and Unitholders of record as
of July 30, 1999. A distribution of $0.30 per share/unit was declared on
September 28, 1999 for the fourth quarter of 1999 and paid on November 30, 1999,
to Common Stockholders and Unitholders of record as of October 29, 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.

10. EXTRAORDINARY LOSS

For the year ended December 31, 1999, the Company recorded extraordinary
loss of approximately $10.8 million. This amount represents the prepayment fees
paid in connection with the property debt restructurings that were completed
during June 1999 and October 1999, as well as the net write off of any remaining
unamortized premium/discount recorded by the Company related to the retired
debt. See Notes 5 and 16 for more information about the two restructurings.

F-24
<PAGE>
11. NET INCOME PER COMMON SHARE

The table below sets forth the calculation of income per common share for
1999, 1998 and 1997 (Dollar amounts in thousands, except per share amounts):

<TABLE>
<CAPTION>
1999 1998 1997
------------------- ------------------- -------------------
BASIC DILUTED BASIC DILUTED BASIC DILUTED
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Proceeds upon exercise of options......... -- $ 22,045 -- $23,871 -- $ 25,162
Market price of shares average for the
respective year......................... -- $ 15.28 -- $ 16.80 -- $ 17.13
Treasury shares that could be repurchased
(options)............................... -- 1,443 -- 1,421 -- 1,469
Option shares outstanding................. -- 1,530 -- 1,657 -- 1,727
Weighted common stock equivalent shares
(excess shares under option over
Treasury shares that could be
repurchased)............................ -- 87 -- 236 -- 236
Convertible preferred stock............... -- 3,030 -- -- -- --
Convertible debt shares................... -- 904 -- -- -- --
Weighted average common shares
outstanding............................. 128,817 128,817 100,319 100,319 43,572 43,572
-------- -------- ------- ------- -------- --------
Adjusted weighted average common Shares
outstanding............................. 128,817 132,838 100,319 100,555 43,572 43,808
Net income for the period................. $230,653 $230,653 $83,465 $83,465 $ 37,547 $ 37,547
Interest on convertible debt.............. -- $ 745 -- -- -- --
$(10,160)
Income applicable to preferred stock...... $ (3,500) $ -- $(3,500) $(3,500) $(10,
-------- -------- ------- ------- -------- --------
Net income applicable to common stock..... $227,153 $231,398 $79,965 $79,965 $ 27,387 $ 27,387
Net income per common share............... $ 1.76 $ 1.74 $ 0.80 $ 0.80 $ 0.63 $ 0.63
</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 period. In addition, the Company will be obligated to redeem each
UPREIT Unit held by such unitholder for one share of Common Stock or, at the
option of the Company, cash equal to the fair market value of one share of
Common Stock at the time of redemption. As of December 31, 1999, 1,125,175
UPREIT Units have been redeemed for shares of Common Stock on a one-for-one
basis and 76,647 UPREIT Units have been redeemed for approximately $1.2 million
in cash.

12. RETIREMENT PLANS

Effective July 1, 1995, the eligible employees of the Company participate in
a noncontributory age-weighted profit sharing plan. The Company's cash
contribution to such plan was approximately $134,000, $100,000, and $91,400 for
the years ended December 31, 1999, 1998, and 1997 respectively.

Effective July 1, 1995, the eligible employees of the Company also
participate in a 401(k) contributory savings plan. Under the plan, the Company
matches contributions made by eligible employees based on a percentage of the
employee's salary. The Company will match 100% of contributions up to 5.0% of
such employee's salary with an annual maximum matching contribution of $4,000
per employee. The Company's matching contribution was approximately $654,000,
$69,600, and $52,600 for the years ended December 31, 1999, 1998, and 1997
respectively.

The Company has adopted the Cornerstone Properties Inc. 1998 Long-Term
Incentive Plan (the "Incentive Plan") to provide incentives to attract and
retain officers and key employees. Under the Incentive Plan as amended and
restated on December 14, 1998, the number of shares available for option grant
are approximately 7,400,000. During 1999, options on approximately 40,000 shares
of Common Stock

F-25
<PAGE>
at an exercise price of $17.25 per share have been granted under the plan. As of
December 31, 1999, 10,000 of these shares have been forfeited. Refer to Note 8
for additional vesting information.

13. CONCENTRATION OF RISK

Approximately 5.8 million of the Company's 17 million rentable square feet
is located in the San Francisco metropolitan market, accounting for
approximately 29% of the Company's total assets at December 31, 1999. In
addition, five of the Company's 83 office Properties are located in the Downtown
Boston market, accounting for approximately 19.4% of the Company's office and
parking revenues for the year ended December 31, 1999. This concentration of
assets makes the Company particularly vulnerable to adverse changes in economic
conditions in the San Francisco and Boston metropolitan areas. A significant
decline in these economic conditions could have a material adverse effect on the
Company.

Norwest Corporation and its subsidiary, Norwest Bank Denver N.A., tenants of
the Company, provided approximately 6.2%, 9.5% and 20.0% of office and parking
rental income for the years ended December 31, 1999, 1998 and 1997,
respectively. Included in deferred tenant receivables is approximately
$34.8 million and $33.9 million due from Norwest Corporation at December 31,
1999 and 1998, respectively. As a result of the sale of the Company's property
located in Denver during the fourth quarter of 1999, the concentration of
revenue received from this tenant will be significantly reduced.

14. RELATED PARTY TRANSACTIONS

The Company has entered into $250.0 million of mortgage debt with one of its
major stockholders, PGGM, as further described in Note 5.

In connection with the Wilson Acquisition, certain third-party services
business of WW&A was acquired by WCP Services, Inc., a Delaware corporation
("WCP Services"). The Operating Partnership owns 100% of the non-voting common
stock and 1% of the voting common stock of WCP Services. Mr. Wilson and
Mr. Moody each own 49.5% of the voting common stock of WCP Services. To fund the
purchase of such shares of voting common stock, the Operating Partnership loaned
$178,750 to each of Mr. Wilson and Mr. Moody, all of which remained outstanding
as of December 31, 1999. The notes accrue interest at a rate equal to 140 basis
points plus the one-year London Interbank Offered Rate, which rate is adjusted
annually. The notes are due and payable on or before December 16, 2008. In
connection with the EOP Merger Agreement, Messrs. Wilson and Moody entered into
an agreement to sell their voting common stock of WCP Services to EOP at a
purchase price of $200,000 each.

15. FAIR VALUE OF FINANCIAL INSTRUMENTS

Cornerstone is required to disclose the fair value of financial instruments
for which it is practicable to estimate that value. The Company determines the
fair value based on discounting future cash flows at a rate that approximates
the Company's effective current borrowing rate (see also Note 5). For the year
ended December 31, 1999 and 1998, the fair value of the Company's long term debt
was approximately $1,183,000 and $1,555,000, respectively.

16. SUPPLEMENTAL CASH FLOW INFORMATION

Cash paid for interest was approximately $138,375,000, $60,992,000 and
$30,204,000 for the years ended December 31, 1999, 1998 and 1997, respectively.

NON-CASH INVESTING AND FINANCING ACTIVITIES

On October 27, 1997, the Company acquired the PGGM Portfolio for a purchase
price of approximately $1.06 billion, consisting of approximately 34.2 million
shares of Common Stock valued and

F-26
<PAGE>
recorded at $16.00 per share, approximately $260.0 million in cash and
$250.0 million in promissory notes. The Company also recorded a minority
interest of $33.2 million in connection with this acquisition.

On January 5, 1998, the Company purchased for approximately $5.5 million,
the participation rights in the cash flow and residual value of Tower 56 from
the former participants for 307,692 shares of Common Stock.

On January 28, 1998, the Company purchased Corporate 500 Centre. As part of
the total purchase price of approximately $150.0 million, the Company issued
822,794 UPREIT Units valued at $18.50 per unit.

On April 28, 1998, the Company purchased One Memorial Drive. As part of the
total purchase price of approximately $112.5 million, the Company issued
3,428,571 shares of common stock and 1,657,426 UPREIT Units, both valued at
$17.50.

On June 3, 1998, the Company purchased 201 California Street and Wilshire
Palisades. As part of the total purchase price for the Properties of
approximately $121.5 million, the Company assumed $64.6 million in debt and
issued 1,665,663 UPREIT Units valued at $17.50 per unit.

On September 25, 1998, in conjunction with the refinancing of the One
Norwest Center mortgage, the Company incurred an extraordinary loss of
approximately $2,269,000, which represents the unamortized deferred financing
costs and prepayment fees on the previous One Norwest Center mortgage at the
time of the refinancing.

On October 9, 1998, in conjunction with the refinancing of the Corporate 500
Centre mortgage, the Company incurred an extraordinary loss of $354,717, which
represents the unamortized deferred financing costs on the previous Corporate
500 Centre mortgage at the time of the refinancing.

On November 3, 1998, the Company obtained a $550.0 million Revolving Credit
Facility from a syndicate of 17 banks led by Deutsche Bank, The Chase Manhattan
Bank and Bank of America. In conjunction with obtaining this new Revolving
Credit Facility, the Company incurred an extraordinary loss of $1,680,016, which
represents the unamortized deferred financing costs related to the previous
$350.0 million facility, which was extinguished at the time that the new
Revolving Credit Facility was obtained.

On December 16, 1998, the Company consummated the Wilson Acquisition for a
purchase price of approximately $1.8 billion, consisting of approximately
14.9 million shares of Common Stock valued at $17.25 per share (recorded at
$16.25 per share for GAAP purposes), approximately 16.2 million UPREIT Units
valued at $17.25 per unit (recorded at $16.25 for GAAP purposes), approximately
$465.0 million in cash and the assumption of approximately $760.0 million of
property and construction related debt (recorded at $773.7 million for GAAP
purposes). The Company also recorded a minority interest of $241.0 million in
connection with this acquisition.

During the first quarter of 1999, pursuant to the requirements of SOP 98-5
(as defined in Note 1), the Company wrote off all unamortized organizational
costs and recorded a cumulative effect of a change in accounting principle of
$630,044.

On February 1, 1999, the Company issued 113,500 shares of restricted stock
valued at $15.50 per share to certain employees of the Company. Refer to Note 8
for the vesting of this grant.

On June 23, 1999, in conjunction with the restructuring of property-related
debt with Prudential Insurance Company 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. See Note 5 for more information about this
restructuring.

F-27
<PAGE>
During 1999, 1,700 shares of restricted Common Stock issued to certain
employees of the Company were forfeited as a result of their separation from the
Company.

On July 30, 1999, 562,588 UPREIT Units were redeemed for shares of Common
Stock on a one-for-one basis.

On August 3, 1999, 562,587 UPREIT Units were redeemed for shares of Common
Stock on a one-for-one basis.

On August 17, 1999, the Company reacquired 10,833 shares of restricted
Common Stock as a result of the forfeiture of these shares by a certain employee
of the Company.

On October 6, 1999, in conjunction with the restructuring of
property-related debt with Northwestern Mutual Life Insurance Company, the
Company incurred an extraordinary loss of approximately $7,432,000, of which
approximately $2,551,000 represents the unamortized premium/discounts associated
with various debt instruments. See Note 5 for more information about this
restructuring.

On December 10, 1999, in conjunction with the sale of One Norwest Center in
Denver, Colorado, $97.3 million of outstanding debt was assumed by the
purchaser.

17. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)

(Dollar amounts in thousands except per share amounts):

<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------
DECEMBER 31 SEPTEMBER 30 JUNE 30 MARCH 31
----------- ------------ -------- --------
<S> <C> <C> <C> <C>
1999
Revenues......................................... $155,515 $156,539 $153,629 $151,765
Income before cumulative effect of a change in
accounting principle and extraordinary loss.... 141,046 42,267 29,095 29,662
Cumulative effect of a change in accounting
principle...................................... -- -- -- (630)
Extraordinary loss............................... (7,432) -- (3,355) --
Net income....................................... 133,614 42,267 25,740 29,032
Per share data:
Income before cumulative effect of a change in
accounting principle and extraordinary
item......................................... 1.08 0.32 0.22 0.22
Basic net income per common share.............. 1.02 0.32 0.19 0.22
Diluted net income per common share............ 1.00 0.32 0.19 0.22

1998
Revenues......................................... $102,402 $ 89,038 $ 86,490 $ 81,556
Income before extraordinary item................. 24,535 21,227 19,252 22,754
Extraordinary loss............................... (2,034) (2,269) -- --
Net income....................................... 22,501 18,958 19,252 22,754
Per share data:
Income before extraordinary item............... 0.22 0.20 0.18 0.24
Basic and diluted net income per common
share........................................ 0.20 0.18 0.18 0.24
</TABLE>

F-28
<PAGE>
18. 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. See Note 13 for information regarding
concentration of risk.

The Company evaluates performance based on net operating income from the
individual properties in the segment. (Dollar amounts in thousands)

<TABLE>
<CAPTION>
CORPORATE & COMPANY
TOTAL SEGMENT OTHER(A) TOTAL
------------- ----------- ----------
<S> <C> <C> <C>
Total revenues (B):
1999..................................... $ 611,657 $ 5,791 $ 617,448
1998..................................... 354,145 5,341 359,486
1997..................................... 160,490 13,421 173,911
Total operating and Interest expenses
(C):
1999..................................... $ 212,686 $ 156,263 $ 368,949
1998..................................... 122,423 80,472 202,895
1997..................................... 61,522 41,541 103,063
Net operating income (D):
1999..................................... $ 398,971 $(150,472) $ 248,499
1998..................................... 231,722 (75,131) 156,591
1997..................................... 98,968 (28,120) 70,848
Total long-lived assets (E):
1999..................................... $3,770,924 $ 66,064 $3,836,988
1998..................................... 4,137,302 54,782 4,192,084
1997..................................... 1,996,404 9,147 2,005,551
Total assets:
1999..................................... $3,776,765 $ 393,463 $4,170,228
1998..................................... 4,198,099 83,885 4,281,984
1997..................................... 1,757,372 294,109 2,051,481
</TABLE>

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

(A) Corporate and Other represents all corporate-level items (including interest
income, interest expense and general and administrative expenses) as well as
intercompany eliminations necessary to reconcile to consolidated Company
totals.

(B) Total revenues represents all revenues during the period (including the
Company's earnings in real estate joint ventures). All interest income is
excluded from the segment amounts and is classified in Corporate and Other
for all periods.

(C) Total operating and interest expenses 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 $96,726,000, $59,278,000 and $30,978,000 in 1999, 1998
and 1997, 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 rentals property, investments in
joint ventures, other deferred costs, deferred tenant receivables and
certain other assets.

F-29
<PAGE>
19. SUBSEQUENT EVENTS

On January 20, 2000, the Company declared a distribution of $0.31 per
share/unit paid on February 29, 2000, to Common Stockholders and Unitholders of
record as of January 31, 2000.

On January 21, 2000, the Company purchased 400 Capitol Mall in Sacramento,
California. This property contains approximately 502,000 rentable square feet.
The total purchase price for the Property was approximately $130.0 million,
consisting of approximately $128.0 million in cash, of which $104.8 million was
Section 1031 exchange funds from the sale of One Norwest Center in Denver,
Colorado, and approximately $2.0 million of which was paid in UPREIT Units
valued at $17.25 per unit.

On March 8, 2000, 9,200 UPREIT Units were redeemed for shares of Common
Stock on a one-for-one basis.

F-30

<PAGE>

Exhibit 10.7

Execution Copy

FIFTH AMENDMENT TO AGREEMENT OF LIMITED
PARTNERSHIP OF CORNERSTONE PROPERTIES LIMITED PARTNERSHIP

THIS FIFTH AMENDMENT TO AGREEMENT OF LIMITED PARTNERSHIP OF CORNERSTONE
PROPERTIES LIMITED PARTNERSHIP (this "AMENDMENT") is made and entered into as of
the 21st of January, 2000, by CORNERSTONE PROPERTIES INC., a Nevada corporation,
as general partner (the "GENERAL PARTNER") of Cornerstone Properties Limited
Partnership (the "PARTNERSHIP"), for itself and on behalf of the Limited
Partners of the Partnership, and the "Contributors" (as hereinafter defined).

WHEREAS, the Partnership was formed by the filing of that certain
Certificate of Limited Partnership with the Delaware Secretary of State on
December 23, 1997 and is organized pursuant to the provisions of the Delaware
Revised Uniform Limited Partnership Act and pursuant to that certain
Agreement of Limited Partnership of Cornerstone Properties Limited
Partnership, dated as of December 23, 1997, as amended by First Amendment to
Agreement of Limited Partnership of Cornerstone Properties Limited
Partnership, dated as of January 29, 1997 [sic], by Amendment to First
Amendment to Agreement of Limited Partnership of Cornerstone Properties
Limited Partnership, dated as of January 29, 1998, by Second Amendment to
Agreement of Limited Partnership of Cornerstone Properties Limited
Partnership, dated as of April 28, 1998, by Third Amendment of Agreement of
Limited Partnership dated as of June 3, 1998, and by the Fourth Amendment to
Agreement of Limited Partnership dated as of December 16, 1998 (the
"PARTNERSHIP AGREEMENT");

WHEREAS, on even date herewith, the parties identified as
"Contributors" on the signature page hereto (the "CONTRIBUTORS") have made
Capital Contributions to the Partnership in exchange for Class A Partnership
Common Units of limited partner interest in the Partnerships;

WHEREAS, each Contributor is not currently a Limited Partner (a "NEW
PARTNER") desires to become a party to the Partnership agreement as a Limited
Partner and to be bound by all terms, conditions and other provisions of this
Amendment and the Partnership Agreement; and

WHEREAS, the parties desire to amend the Partnership Agreement to
reflect the admission of each New Partner as an Additional Limited Partner and
the issuance to each Contributor of a certain number of Units and certain other
matters as herein provided;

NOW, THEREFORE, in consideration of the mutual covenants and agreements
herein contained and other good and valuable consideration, the receipt,
adequacy and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:

<PAGE>

1. DEFINITIONS. The terms used in this Amendment with an initial capital
letter or letters shall have the same meanings in this Amendment as the meanings
ascribed thereto in the Partnership Agreement.

2. ADMISSION OF NEW PARTNERS. Each New Partner is hereby admitted as
an Additional Limited Partner in accordance with Section 12.2 of the
Partnership Agreement holding such number of Units as is set forth on EXHIBIT
A. Each New Partner hereby agrees to become a party to the Partnership
Agreement as a Limited Partner and to be bound by all the terms, conditions
and other provisions of the Partnership Agreement, including but not limited
to the power of attorney set forth in Section 2.4 of the Partnership
Agreement. Pursuant to Section 12.2.B of the Partnership Agreement, the
General Partner hereby consents to the admission of each New Partner as an
Additional Limited Partner of the Partnership. The admission of each New
Partner shall become effective as of the date of this Amendment, which shall
also be the date on which the name of each New Partner is recorded on the
books and records of the Partnership.

3. RESTATEMENT OF EXHIBIT A. EXHIBIT A to the Partnership Agreement is
hereby amended and restated by replacing EXHIBIT A with EXHIBIT A attached to
this Amendment.

4. DISPOSITION OF PROPERTY. Notwithstanding anything to the contrary set
forth in the Partnership Agreement, but subject to Paragraph 5 hereof, the
Partnership agrees not to sell, transfer, exchange or otherwise dispose of, and
shall cause any Holding Company not to sell, transfer, exchange or otherwise
dispose of, all or any portion of the property commonly known as 400 Capitol
Mall, Sacramento, California (the "400 CAPITOL MALL PROPERTY"), or any property
acquired in exchange therefore pursuant to the succeeding sentence of this
Paragraph 4 (each a "DISPOSITION"), until the seventh anniversary of the date of
this Amendment. Notwithstanding the preceding sentence, the Partnership may (a)
make a Disposition by way of a like-kind exchange under Section 1031 of the Code
that does not result in the recognition of any taxable income or gain to a
Contributor, (b) make any other Disposition that pursuant to a non-recognition
provision of the Code does not result in the recognition of any taxable income
or gain to a Contributor under the United States federal income tax and
California tax law, or (c)make any Disposition in compliance with Paragraph 5
hereof.

5. TAX GROSS-UP.

(a) Notwithstanding the first sentence of Paragraph 4 hereof,
the Partnership shall not be prohibited hereunder from making any Disposition
prior to the seventh anniversary of the date of this Amendment, provided that
concurrently with and as a condition to the consummation of any such
Disposition, the Partnership pays, in accordance with this Paragraph 5, to each
contributor and each direct and indirect partner, member or shareholder thereof
(each an "INDEMNITEE") to the extent such partner, member or shareholder is
required to take any income or gain of such Contributor into account in
determining his liability for "Taxes" (as hereinafter defined) an amount equal
to the "Tax Liability" of each such Indemnitee attributable to such Disposition.

2
<PAGE>

(b) For purposes of this Amendment, "TAXES" shall mean any tax,
levy or other assessment imposed on any Indemnitee attributable to the income
or gain that would have been allocated to the Indemnitee if the Property had
been disposed of in a fully taxable transaction as of the date of this
Amendment for total consideration equal to the sum of (i) the "Purchase
Price" (as defined in the Agreement of Sale and Purchase and Joint Escrow
Instructions dated as of January 14, 2000, between Crocker Properties Inc.
and the Partnership) and (ii) the "Consideration" (as defined in the
Contribution Agreement and Agreement and Sale and Purchase and Joint Escrow
Instructions dated as of January 21, 2000, between the partners of
WW-Sacramento, L.P. and the Partnership), including, without limitation, any
income tax or California franchise tax based on or measured by income or
gain, any alternative or add-on minimum tax, together with any interest
penalty, addition to tax or other additional amount imposed thereon that is
attributable to the Partnership's failure to provide an Indemnitee with
accurate information to allow such Indemnitee to timely comply with their
reporting and payment obligations with respect to such tax, levy or
assessment, imposed by any governmental authority, domestic or foreign,
having jurisdiction over the imposition, assessment, determination or
collection of any of the foregoing.

(c) For purposes of this Amendment, the "TAX LIABILITY" of each
Indemnitee shall mean the sum of (i) the amount of Taxes payable by such
Indemnitee as a result of a Disposition plus (ii) the amount of any Taxes
payable by such Indemnitee resulting from the Partnership's payments to such
Indemnitee pursuant to this Paragraph 5 (including any additional tax on the
amount described in this clause (ii)).

(d) The amount of an Indemnitee's Tax Liability and Taxes shall
be calculated based on the maximum combined stated and federal tax rates
applicable to such Indemnitee and as if such Indemnitee had no other items of
income, gain, loss, deduction or credit, other than the allowable federal
deduction, if any, for the amount of state, local or foreign Taxes included in
such calculation.

6. MISCELLANEOUS. This Amendment shall be binding upon and inure to the
benefit of the parties hereto and their respective successors and assign. The
Partners hereby ratify and confirm the Partnership Agreement, as amended by this
Amendment. This Amendment shall be governed by and construed in conformity with
the laws of the State of Delaware. This Amendment may be executed in
counterparts, each of which shall be an original, and all of which shall
constitute one and the same instrument.

[signatures commence on the following page]

3
<PAGE>

IN WITNESS WHEREOF, the undersigned have executed this Amendment as of
the date first set forth above.

CORNERSTONE PROPERTIES INC.,
a Nevada corporation, as General Partner of
Cornerstone Properties Limited Partnership and on
behalf of existing Limited Partners

By: /s/ John S. Moody
---------------------------------
John S. Moody
President and Chief Executive Officer

By: /s/ Thomas P. Loftus
---------------------------------
Thomas P. Loftus
Chief Administrative Officer and Secretary

"CONTRIBUTORS"

William Wilson III
David R. Word
John J. Hamilton, III
Timothy S. Mayotte
Webcor Builders, Inc.
James W. Arce
Reed L. and Margaret C. Funsten, as Trustees of the
Reed and Margaret Funsten Primary Trust u/a dated
August 23, 1994, Schedule A Property
Shelly H. Bransten, as Trustee of the Shelly H.
Bransten Revocable Trust u/a dated 3/29/99
Anne H. Bransten, as Trustee of the Anne Helen
Bransten Revocable Trust u/a dated 3/19/99
Lisa J. Bransten, as Trustee with respect to her
Separate property under Trust Agreement dated
November 6, 1998

By: /s/ William Wilson III
-----------------------------
William Wilson III
Attorney-in-Fact

<PAGE>

Exhibit 10.14

EXECUTION VERSION

This FIRST AMENDMENT (this "AMENDMENT"), dated as of May 10, 1999, to
the SECOND AMENDED AND RESTATED REVOLVING CREDIT AND GUARANTY AGREEMENT, dated
as of November 3, 1998 (as the same has been supplemented and is now in effect,
the "Loan Agreement"), is by and among: (i) CORNERSTONE PROPERTIES INC., a
corporation duly organized and validly existing under the laws of Nevada
("Cornerstone"); (ii) CORNERSTONE PROPERTIES LIMITED PARTNERSHIP, a Delaware
limited partnership ("Cornerstone LP"; together with Cornerstone, the
"Borrowers," and each a "Borrower"); (iii) each of the direct and indirect
Subsidiaries of the Borrowers that is a signatory hereto identified under the
caption "GUARANTORS" on the signature pages thereto; (iv) each of the financial
institutions that is a signatory hereto identified under the caption "LENDERS"
on the signature pages thereto (individually, a "LENDER" and, collectively, the
"LENDERS"); (v) BANKERS TRUST COMPANY, as Administrative Agent for the Lenders
thereunder (in such capacity, the "ADMINISTRATIVE AGENT"); (vi) THE CHASE
MANHATTAN BANK, as Syndication Agent for the Lenders thereunder (in such
capacity, the "SYNDICATION AGENT"); and (vii) NATIONSBANK, N.A., as
Documentation Agent for the Lenders thereunder (the "DOCUMENTATION AGENT," and
together with the Administrative Agent and the Syndication Agent, the "AGENTS").

R E C I T A L S:
- - - - - - - -

WHEREAS, capitalized terms used herein and not otherwise defined
herein shall have the meanings assigned to such terms in the Loan Agreement; and

WHEREAS, pursuant to the Loan Agreement, the Lenders have agreed to
make revolving loans to Cornerstone and Cornerstone LP in an aggregate principal
amount not to exceed $550,000,000; and

WHEREAS, the Borrowers, the Guarantors, the Agents, and the Lenders
are willing, on the terms and subject to the conditions set forth below, to
amend the Loan Agreement (the Loan Agreement, as amended pursuant to the terms
of this Amendment, being referred to as the "AMENDED LOAN AGREEMENT");

NOW, THEREFORE, the undersigned agree as follows:

SECTION 1. AMENDMENTS TO LOAN AGREEMENT. Effective on (and subject to the
occurrence of) the First Amendment Effective Date (as such term is defined in
Section 4), the Loan Agreement is hereby amended in accordance with this Section
1; except as expressly amended by this Amendment, the Loan Agreement shall
continue in full force and effect in accordance with its terms:

SECTION 1.1. AMENDMENTS TO SECTION 1.1. (i) Section 1.1 of the Loan
Agreement is amended by deleting clause (i) of the definition of the term
"Applicable Margin" in its entirety and inserting in lieu thereof the following:

<PAGE>

"(i) for any date of calculation during any period during which neither
Borrower has received a Minimum Long Term Debt Rating or during which all
such ratings have been withdrawn by the applicable rating agency, the
number of basis points ("bps") per annum opposite the Leverage Ratio
(calculated as of the end of the immediately preceding fiscal quarter) set
forth in the grid below under the caption "Applicable Eurodollar Margin"
or "Applicable Unused Line Fee Margin," as the case may be:

<TABLE>
<CAPTION>
Applicable Applicable
Leverage Ratio Eurodollar Margin Unused Line Fee Margin
- ---------------------------------------------- ----------------- ----------------------
<S> <C> <C>
LESS THAN OR EQUAL TO .3 110 bps 15 bps

GREATER THAN .3 but LESS THAN OR EQUAL TO .45 125 bps 15 bps

GREATER THAN .45 but LESS THAN OR EQUAL TO .55 140 bps 20 bps

GREATER THAN .55 180 bps 25 bps;
</TABLE>

and".

(ii) Section 1.1 of the Loan Agreement is further amended by adding
thereto the following definition in its appropriate alphabetical order:

'LEVERAGE RATIO ADJUSTMENT DATE' shall mean the earliest to occur of

(i) November 3, 2000, or

(ii) the date on which the cash proceeds received by the Loan Parties
since November 3, 1998 (net of reasonable and customary taxes and
transaction costs actually paid) from all sales, transfers, or other
dispositions of Properties and from all sales or other offerings of equity
securities by the Loan Parties, exceeds $200,000,000 in the aggregate."

SECTION 1.2. AMENDMENTS TO SECTION 8.6. Section 8.6 of the Loan Agreement
is amended by deleting Section 8.6 in its entirety and by inserting in lieu
thereof the following:

"SECTION 8.6. LEVERAGE RATIO. (i) Permit the Leverage Ratio as
at the end of any fiscal quarter to exceed,

(x) from and after the Execution Date until the Business Day immediately
prior to the Leverage Ratio Adjustment Date, sixty per cent (60%), and

(y) from and after the Leverage Ratio Adjustment Date, fifty-five per cent
(55%).

2
<PAGE>

(ii) At any time the Leverage Ratio equals or exceeds fifty-five per cent
(55%), acquire or develop any real properties (other than those properties
listed on Schedule 8.6 hereto) not in the portfolio of the Loan Parties at such
time, if the effect of such acquisition or development would be to increase the
Leverage Ratio."

SECTION 1.3. AMENDMENTS TO SECTION 8.10(I). Section 8.10(i) of the Loan
Agreement is amended by deleting the words "to be less than 2.00 to 1.00"
therefrom and by inserting in lieu thereof the words "to be less than (x) from
and after the Execution Date until the day immediately preceding the first
anniversary of the First Amendment Effective Date, 2.00 to 1.00, and (y) from
and after the first anniversary of the First Amendment Effective Date, 2.22 to
1.00".

SECTION 1.4. AMENDMENTS TO SECTION 8.10(II). Section 8.10(ii) of the Loan
Agreement is amended by deleting the words "to be less than 2.50 to 1.00"
therefrom and by inserting in lieu thereof the words "to be less than (x) from
and after the Execution Date until November 2, 2000, 2.22 to 1.00, and (y) from
and after November 3, 2000, 2.50 to 1.00".

SECTION 1.5. NEW SCHEDULES. The Loan Agreement is hereby
amended by adding thereto a new SCHEDULE 8.6, in the form annexed
hereto as Exhibit A.

SECTION 2. REPRESENTATIONS, WARRANTIES AND COVENANTS.

(a) CORPORATE POWER AND AUTHORITY. Each party hereto represents that
it has all requisite organizational power and authority to enter into and
perform its obligations under this Agreement. The execution, delivery and
performance of this Agreement have been duly authorized by all necessary
organizational action on the part of each such party.

(b) COMPLIANCE WITH OTHER INSTRUMENTS, ETC. The Loan Parties hereby
jointly and severally represent that the consummation of the transactions
contemplated by this Amendment will not result in any breach of, or constitute a
default under, or result in the creation of any mortgage, lien, pledge, charge,
security interest or other encumbrance in respect of any property of either of
the Borrowers, any of the Guarantors or any of their Subsidiaries under, any
indenture, mortgage, deed of trust, bank loan or credit agreement, corporate
charter, by-law, or other agreement or instrument to which either of the
Borrowers, any of the Guarantors or any of their Subsidiaries is a party or by
which either of the Borrowers, any of the Guarantors, any of their Subsidiaries
or any of their properties may be bound or affected, or violate any existing
law, governmental rule or regulations, or any order of any court, arbitrator or
governmental body, applicable to either of the Borrowers, any of the Guarantors,
any of their Subsidiaries or any of their properties.

(c) GOVERNMENTAL CONSENT. The Loan Parties hereby jointly and
severally represent that no consent, approval or authorization of, or
registration, filing or declaration with, any governmental

3
<PAGE>

authority is required for the validity of the execution and delivery by the
Borrowers and the Guarantors of this Amendment or the consummation of the
transactions contemplated hereby, except for such consents, approvals or
authorizations which have been obtained or waived.

SECTION 3. EXPENSES. Without limiting the generality of any provision
of the Loan Agreement, the Loan Parties hereby jointly and severally agree to
pay any invoices or statements submitted for the reasonable fees, expenses and
client charges of Willkie Farr & Gallagher, counsel for the Agents, for any
services rendered in connection with the transactions contemplated hereby and
with respect to this Amendment and any other document delivered pursuant to this
Amendment.

SECTION 4. EFFECTIVENESS. This Amendment shall become effective on
the date (the "First Amendment Effective Date") of the delivery to the
Administrative Agent of a copy of this Amendment executed by the Lenders, the
Agents, the Borrowers, and the Guarantors.

SECTION 5. COUNTERPARTS; SEPARATE AGREEMENTS. This Amendment may be
executed simultaneously in one or more counterparts, each of which shall be
deemed an original, but all of which together shall constitute one and the same
instrument.

SECTION 6. FURTHER ASSURANCES. Each of the Borrowers and the
Guarantors hereby jointly and severally agrees that it will, and will cause each
of the other Loan Parties to, take any action that from time to time may be
reasonably necessary to effectuate the amendments contemplated herein.

SECTION 7. HEADINGS. The headings of the several sections
of this Amendment are inserted for convenience only and shall not in
any way affect the meaning or construction of this Amendment.

SECTION 8. NO OTHER CHANGES. (a) Except as expressly
stated herein, the Loan Agreement is unaffected hereby and shall
remain in full force and effect in accordance with the terms thereof.

(b) The Guarantors jointly and severally expressly agree that the
Loan Agreement and their obligations as Guarantors thereunder are unaffected
hereby and shall remain in full force and effect in accordance with the terms
thereof.

(c) Except as expressly set forth herein, the Lenders do not waive
(i) any breaches or defaults under the Loan Agreement or any other agreements
executed concurrently therewith or pursuant thereto, whether known or unknown,
previously or hereafter arising, or of any nature or character whatsoever, or
(ii) any of their respective rights or remedies thereunder or under applicable
law.

SECTION 9. REAFFIRMATION. The Borrowers and the Guarantors hereby
jointly and severally represent and warrant to the Lenders that

4
<PAGE>

each of the representations and warranties contained in the Loan Agreement were
true and correct in all material respects when made and, except to the extent
(i) that a particular representation or warranty by its terms expressly applies
only to an earlier date, or (ii) the Borrowers have previously advised the
Lenders in writing as contemplated under the Loan Agreement, are true and
correct in all material respects as of the date of this Amendment.

SECTION 10. FACILITY DOCUMENT PURSUANT TO LOAN AGREEMENT. This
Amendment is executed pursuant to the Loan Agreement, shall be a Facility
Document, and shall be construed, administered and applied in accordance with
all of the terms and provisions of the Loan Agreement (and, following the First
Amendment Effective Date, the Amended Loan Agreement). Any breach of any
representation or warranty or covenant or agreement contained in this Amendment
shall be deemed to be an Event of Default for all purposes of the Loan
Agreement.

SECTION 11. CROSS-REFERENCES. References in this Amendment
to any Article or Section are, unless otherwise specified or
otherwise required by the context, to such Article or Section of this
Amendment.

SECTION 12. SUCCESSORS AND ASSIGNS. This Amendment shall
be binding upon and inure to the benefit of the parties hereto and
their respective successors and assigns.

SECTION 13. GOVERNING LAW. THIS AMENDMENT SHALL BE DEEMED
TO BE A CONTRACT MADE UNDER AND GOVERNED BY THE LAWS OF THE STATE OF
NEW YORK.

5
<PAGE>

IN WITNESS WHEREOF, the parties hereto have signed, or caused their
duly elected officer to sign on the date first written above.

BORROWERS:

CORNERSTONE PROPERTIES INC.

By:
-------------------------------------
Name:
Title:

CORNERSTONE PROPERTIES LIMITED
PARTNERSHIP

By: CORNERSTONE PROPERTIES INC.,
Its General Partner

By:
--------------------------------
Name:
Title:

<PAGE>

GUARANTORS:

CORNERSTONE DENVER LLC
CORNERSTONE PEACHTREE LLC
500 BOYLSTON CORNERSTONE LLC
222 BERKELEY CORNERSTONE LLC
125 SUMMER STREET CORNERSTONE LLC
CORNERSTONE MINNEAPOLIS LLC
CORNERSTONE NEW YORK LLC
CORNERSTONE 11 CANAL CENTER LLC
CORNERSTONE 99 CANAL LLC
CORNERSTONE SEATTLE LLC

By: CORNERSTONE PROPERTIES LIMITED
PARTNERSHIP, the sole member of
each

By: CORNERSTONE PROPERTIES
INC., its general partner

By:
----------------------------------
Name:
Title:

CORPRO REAL ESTATE MANAGEMENT, INC.

By:
---------------------------------
Name:
Title:

AGOURA HILLS BUSINESS PARK ASSOCIATES, LLC
TEN ALMADEN ASSOCIATES, LLC
18301 ASSOCIATES, LLC
110 ATRIUM PLACE ASSOCIATES, LLC
BIXBY OFFICE PARK ASSOCIATES, LLC
66 BOVET ASSOCIATES, LLC
490 CALIFORNIA ASSOCIATES, LLC
2300 CR ASSOCIATES, LLC
EMBARCADERO PLACE ASSOCIATES, LLC
HACIENDA PLAZA ASSOCIATES, LLC
ISLAND CORPORATE CENTER ASSOCIATES, LLC
2677 MAIN STREET ASSOCIATES, LLC
4550 NCR ASSOCIATES, LLC
4600 NCR ASSOCIATES, LLC
OFFICE OPPORTUNITY ASSOCIATES, LLC
PARK PLAZA ASSOCIATES, LLC
PRUNEYARD ASSOCIATES, LLC

<PAGE>

429 SANTA MONICA ASSOCIATES, LLC
SEAPORT PLAZA ASSOCIATES, LLC
SEARISE ASSOCIATES, LLC
5300 SOUTH ASSOCIATES, LLC
WARNER PARK ASSOCIATES, LLC
WEST WILSHIRE ASSOCIATES, LLC
WESTLAKE SPECTRUM ASSOCIATES, LLC
WESTLAKE SPECTRUM TWO ASSOCIATES, LLC
2700 YGNACIO ASSOCIATES, LLC

By: CORNERSTONE HOLDINGS, LLC, the
managing member of each

By:
-----------------------------------
Name:
Title:

BAY PARK PLAZA ASSOCIATES, L.P.
BILTMORE LAKES ASSOCIATES, L.P.
CENTERSIDE ASSOCIATES, L.P.
2000 CROW CANYON ASSOCIATES, L.P.
2010 CROW CANYON ASSOCIATES, L.P.
1300 EL CAMINO ASSOCIATES, L.P.
188 EMBARCADERO ASSOCIATES, L.P.
GATEWAY PHOENIX ASSOCIATES, L.P.
GBC UNIVERSITY ASSOCIATES, L.P.
700 NORTH BRAND ASSOCIATES, L.P.
PENINSULA OFFICE PARK ASSOCIATES, L.P.
1737 NORTH FIRST STREET ASSOCIATES, L.P.
ONE BAY PLAZA ASSOCIATES, L.P.
7373 SCOTTSDALE ASSOCIATES, L.P.
5990 SEPULVEDA ASSOCIATES, L.P.
1301 SHOREWAY ASSOCIATES, L.P.
1600 SOUTH MAIN ASSOCIATES, L.P.
5820 STONERIDGE ASSOCIATES, L.P.
1320 WILLOW PASS ASSOCIATES, L.P.
1390 WILLOW PASS ASSOCIATES, L.P.
SECOND AND MAIN ASSOCIATES
BAYHILL ASSOCIATES
CAMPUS DRIVE INVESTMENT COMPANY
CROSSROADS LIMITED
EXPOSITION CENTRE ASSOCIATES, L.P.

By: CORNERSTONE HOLDINGS, LLC, the
general partner of each

By:
-----------------------------------
Name:
Title:

<PAGE>

CORNERSTONE COMMERCE PARK HOLDINGS, LLC
CORNERSTONE BAYHILL HOLDINGS, LLC
CORNERSTONE HOLDINGS, LLC
CORNERSTONE DEERFIELD LLC
ONE MEMORIAL CORNERSTONE LLC
60 STATE STREET CORNERSTONE LLC
CORNERSTONE WILSHIRE-CAL LLC

By: CORNERSTONE PROPERTIES LIMITED
PARTNERSHIP, the sole member of
each

By: CORNERSTONE PROPERTIES
INC., its general partner

By:
-----------------------------------
Name:
Title:

201 CALIFORNIA LLC
1299 OCEAN LLC

By: CORNERSTONE WILSHIRE-CAL LLC,
the sole member of each

By: CORNERSTONE PROPERTIES
LIMITED PARTNERSHIP, its
sole member

By: CORNERSTONE PROPERTIES
INC., its general
partner

By:
--------------------------------
Name:
Title:

<PAGE>

AGENTS AND LENDERS:

BANKERS TRUST COMPANY
as Administrative Agent and
Lender