11 5. ACCOUNTING POLICIES The main valuation rules used by the consolidated Group when drawing up its Consolidated Annual Accounts for 2003 and 2002, in accordance with the General Accounting Plan, were as follows: A) CONSOLIDATION CRITERIA AND TRANSLATION METHOD The  foreign  companies  included  in  the  consolidated  group  have  been  included  after  their  Financial  Statements  were brought into line with Spanish criteria in accordance with the accounting policies set out below. The translation of the Financial Statements of the foreign companies into euros was made using the year-end exchange rate, except for: – Capital and Reserves, which has been translated at the historical exchange rates. – Profit and Loss Accounts, which have been translated at the average exchange rate for the year. The difference on exchange arising as a result of using this method is included in the caption "Translation differences" under "Shareholders equity" on the accompanying Consolidated Balance Sheet. B) START-UP EXPENSES In general, the formation and capital increase expenses represent essentially lawyers' fees, the cost of executing deeds and registration fees, and are capitalised at cost and are amortised on a straight-line basis over a period of five years. The start-up expenses are essentially all the expenses incurred before opening each hotel that do not relate to tangible fixed assets, and are amortised at a rate of 20% per year (see note 6). C) INTANGIBLE ASSETS “Intangible assets" essentially records five items: i) The item "Rights of beneficial use" records the cost of the right to operate the Hotel NH Plaza de Armas in Seville, acquired in 1994, which is being written off against the Consolidated Profit and Loss Account over the 30 years of the term of the contract at a rate that is increasing by 4% a year. ii)    "Premiums for leases" record the amounts paid as a condition for obtaining certain lease contracts for hotels. These premiums are not rent on the lease and are written off on a straight-line basis over the duration of the lease agreement. iii)   "Concession, patents and licences" record, basically, the disbursements made by Gran Círculo de Madrid, S.A. on the construction work to renovate and remodel the building which houses the Casino of Madrid. The amortisation of this work  is  calculated  taking  into  account  the  term  on  which  the  concession  contract  for  operating  and  managing  the services provided in the building where the Casino de Madrid is housed expires (1 January 2037). iv)   "Computer  applications"  includes  various  different  computer  applications  acquired  by  the  different  consolidated companies. These programs are stated at cost and are amortised on a straight-line basis at an annual rate of 25%. v)    The "Rights stemming from finance lease agreements" are recorded as intangible assets at the cash value of the asset, and the total debt for outstanding instalments plus the amount of the purchase option are recorded under liabilities. The difference between the two figures, which represents the financial expense of the operation, is accounted for as deferred expense and is charged to profit and loss every year on a pay-back basis. The rights on assets under finance leases are written off using exactly the same criteria as used for tangible fixed assets. D) TANGIBLE FIXED ASSETS Tangible fixed assets are stated at cost. However, some of the dependent companies have tangible fixed assets acquired prior to 31 December 1983, stated at their cost revalued in accordance with various legal provisions. Later additions have been stated at cost. The costs of extensions, modernisations or improvements which represent an increase in productivity, capacity or efficiency, or  extend  the  life  of  existing  assets  are  recorded  as  an  increase  in  the  cost  of  the  related  assets.  Expenditure  for maintenance and repairs is charged to the Consolidated Profit and Loss Accounts for the year they are incurred. The Group charges depreciation for its tangible fixed assets on a straight-line basis. The cost of the assets is spread over the years of their useful lives as shown in the following table: YEARS OF ESTIMATED USEFUL LIFE Constructions 33-50 Plant and machinery 10-12 Other plant, tools and furniture and fittings 5-10 Other fixed assets 4-5

12 E) INVESTMENTS i)     Holdings consolidated using the equity method are stated at their respective cost values, which are not higher than market rates (book value of the holding plus any latent gains existing at the time of the purchase which continue to exist at the time of the subsequent valuation), plus or minus the Controlling Company's share in the profits or losses in each of the consolidated companies, and after deducting any dividends collected by the Controlling Company. ii)    Holdings in other companies are stated at cost, which is not higher than market rates (book value of the holding plus any latent gains existing at the time of the purchase which continue to exist at the time of the subsequent valuation, which are for the most part assigned to tangible assets, and which remain when the subsequent valuation is made). An appropriate provision is set up when clear signs that circumstance of sufficient importance have occurred which involve a decline in value. F) GOODWILL ON CONSOLIDATION The figure recorded under goodwill on consolidation is the positive difference between the cost of each holding and the book value of the holding acquired, less any latent capital gains existing when the shareholding was acquired, assigned to assets of the acquired company and which still exist at the year end. The differences on consolidation that arose as a result of the acquisitions of companies have been assigned, whenever this has been possible, based on independent valuations, to the land and buildings contributed by the companies acquired. In general, goodwill on consolidation has been written off on a straight-line basis, taking into account the time needed to recoup the investment as estimated by the Directors and, in any case, over a period not exceeding twenty years as from the month after each holding is acquired. G) DEFERRED EXPENSE Deferred expenses record, essentially, the amounts paid by Casino Club de Golf, S.L., for acquiring assets under finance leases and building the Social Club of the golf course and other improvements made to it, and which correspond to the percentage share of Land in the Community of Assets "Los Retamares", at the time each fixed asset is acquired. This caption also includes the deferred interest expense stemming from other assets under finance leases (see note 5c) and the expenses incurred in arranging debt. H) STOCKS The various different categories of stocks have been stated using the following criteria: Property business - Sotogrande (see note 12) All the costs incurred are identified for each area and product in order to determine the cost of each item when it is sold. This method enables a proportional part of the total value of the land and the development costs to be assigned to the cost of the sale, based on the percentage that the metres sold represent in proportion to the total metres available for sale in each area. In accordance with the Chart of Accounts adapted for property companies, all the land and sites are classified under current assets even though it may take more than one year to build and sell them. i) Undeveloped land: Stated at cost, which includes the legal costs of executing deeds, registration and taxes that cannot be directly recovered from the Tax Authorities. ii)    Developed land: Stated at the lowest of cost or market value.  The cost mentioned above includes the cost of the land, the external cost of urban development and the technical projects. Bearing in mind the special features of the Group's property  business  (developing  and  selling  a  property  of  approximately  16  million  square  metres  over  a  period  of between 40 and 50 years, located in the municipal area of San Roque - Cadiz), the value of the developed land includes the personnel and general expenses of the technical department incurred in connection with developing and designing the  different  projects.  The  personnel  expenses  and  overheads  relating  directly  to  such  projects  in  2003  totaled approximately 0.49 million euros (0.45 million euros in 2002). iii)   Buildings under construction and completed buildings: Are stated at cost, which includes the proportional part of the costs  of  land  and  infrastructure  of  the  Pleasure  Port  and  Inner  Marina  and  the  costs  that  are  directly  incurred  in connection with the different developments (projects, building permits, works certificates, legal expenses relating to the declaration of new construction work, registration, etc.). The Group takes into account the market value and the time it takes for its finished products to be sold, making the necessary adjustments in values whenever they are required. Given the special features of the construction work on the Internal Marina, as from 1991 the staff and general costs of the technical department incurred in connection with developing and designing this project have been included as a increased value of said construction work. Hotel Business iv)   The food in the catering services is stated at the lower of cost or realisable value. I)  DEBTORS The Group follows the criterion of setting up provisions for bad debts that are sufficient to cover the balances that have reached a certain age or which can reasonably be considered to be doubtful debts.

13 Trade debtors with debts that are deferred on sales relating to the property business usually earn appropriate interest, and the total of the account receivable is recorded under assets on the Consolidated Balance Sheet and unearned interest under "Deferred income" on the liabilities side of the Consolidated Balance Sheet, to be taken to the Consolidated Profit and Loss Account on a pay-back basis (see note 5m). J)  CURRENT-ASSET INVESTMENTS Treasury Bills, Government Debt and other investments in fixedinterest securities are stated at cost plus accrued interest receivable at the year end. Equities are stated at cost corrected by the appropriate provision for decline in value whenever their market value (listed price) falls below cost. K) TRANSACTIONS AND BALANCES DENOMINATED IN FOREIGN CURRENCIES Transactions denominated in foreign currencies are translated into euros in the accounts, using rates that are close to the transactional  exchange  rates.  Any  gains  or  losses  on  exchange  arising  when  balances  for  transactions  denominated  in foreign currency are cancelled are taken to the Consolidated Profit and Loss Account when they occur. Debtors and creditors denominated in foreign currency are stated in euros at exchange rates that are close to the rates prevailing as at 31 December. Unrealised net losses, calculated for groups of foreign currencies with similar due dates and market performance, are taken to profit and loss. Unrealised net gains, calculated in the same way, are deferred until they fall due, except in the case of liquid assets, which are stated at the lower of the year-end rate and the average rate for the fourth quarter, and the difference is taken to Consolidated Profit and Loss. L) SHORT/LONG TERM Credits and debts which fall due on or within twelve months are classified as short-term on the Consolidated Balance Sheets. Otherwise they are classified as long-term. M) DEFERRED INCOME This caption records non-refundable capital grants which are stated for the amount granted. They are released to income in proportion to the depreciation recorded during the year by the assets that are being financed by these grants. Furthermore, as a general rule, the relevant interest accrues on trade debts where payment has been deferred. The total account receivable is recorded under assets on the accompanying Consolidated Balance Sheets and the unearned interest is recorded under "Deferred income" and is taken to Consolidated Profit and Loss as it falls due (see note 5i). N) SHARES IN THE CONTROLLING COMPANY The shares of the Controlling Company are stated at the lowest of the following three values: – Average cost – The lower of their year-end price or the average price for the fourth quarter – Consolidated net book value Under current rules, the difference between the average cost and the listed price is taken to Consolidated Profit and Loss. On the other hand, the difference between the listed price and the theoretical book value is charged against Reserves of the Controlling Company. O)  INCOME AND EXPENSE Income and expenses are recorded on the accruals basis, i.e. when the flow of assets and services which they represent actually takes place, irrespective of when the resulting monetary or financial flow occurs. However, in accordance with the principle of conservatism, the Group only accounts for income realized as at the year end, whereas any contingent liabilities and losses, even when they may or may not occur, are recorded as soon as they become known. In  accordance  with  the  General  Chart  of  Accounts  as  adapted  for  Property  Companies,  the  Group  pursues  a  policy  of recording in its accounts the sales of buildings under construction and, consequently, the profit thereon at the time they are substantially complete, which is deemed to take place when the costs outstanding in order to complete construction work are no longer significant, as at least 80% of the total costs of the construction work, not taking into account the value of the land,  has  been  included.  Whenever  at  the  year  end  the  construction  of  any  home  for  which  the  sale  has  already  been recorded  in  the  accounts  has  not  been  completed,  the  costs  yet  to  be  incurred  by  the  Group  in  connection  with  the construction of said homes is recorded under the caption "Trade provisions" on the Consolidated Balance Sheet. As a general rule, in accordance with the principle of correlation of income and expense, staff commissions on sales and others of a general nature (commercial, advertising, etc...) that cannot be specifically allotted to the developments, even though they are undoubtedly connected therewith, which have been incurred between when the developments began and the time the sale is recorded in the accounts, are recorded in the accounts under the caption "Pre-paid expenses" under assets on the Consolidated Balance Sheet to be charged to expense when the sales are recorded in the accounts, provided that at the end of each year the margin on the sales contracts yet to be recorded in the accounts is larger than the expenses.

14 P) CORPORATION TAX Part of the NH Hoteles Group in Spain is included in the consolidated tax group (see note 28). The accounts payable or receivable generated under this heading are settled by NH Hoteles, S.A., the Controlling Company of the Group. The Corporation Tax expense for the year is calculated on the basis of the financial result before taxes, plus or minus any permanent differences between book results and tax results, the latter being the basis of assessment of Corporation Tax minus any tax rebates and deductions. The tax effect of any time differences is included in the appropriate deferred or advance tax account on the Balance Sheets. Q)  COMMITMENTS WITH REGARD TO STAFF The Spanish companies in the hotel industry are required to pay a certain number of months’ pay to employees of a certain seniority  and  meet  certain  requirements,  who  leave  the  company’s  employ  when  they  retire  or  become  permanently disabled. For  companies  in  the  Group  governed  by  a  different  agreement  (property  companies)  there  is  an  incentive  for  early retirement the amount of which varies depending on the number of years of service and the date of retirement. The amount estimated as accruing an not provided for relating to these obligations is not significant as at 31 December 2003 and 2002. R) ENVIRONMENTAL POLICY Capital expenditures stemming from environmental activities are stated at cost and capitalised as an increased cost of fixed assets or inventories in the year they are incurred. Expenses arising from the protection and improvement of the environment are charged to expense in the year they are incurred, regardless of when the related monetary or financial flow takes place. The provisions for probable or certain contingencies, disputes under way or indemnities or obligations outstanding for an undetermined amount of an environmental nature, not covered by the insurance policies that have been taken out, are set up when the liability or the obligation that sets off the indemnity or payment arises. 6. START-UP EXPENSES Set out below is an analysis and the movements on the different intangible asset accounts in 2003 and 2002 (thousand euros): In 2002, the line "Change in scope of consolidation" records the balances of certain companies which were included in the consolidated group for the first time, as has been mentioned in note 2b. In 2003 the "Additions" line includes 5.52 million euros for capitalising initial operating losses incurred by the new hotels that have been written off early in the same year. START-UP EXPENSES Capital Formation Start-up increase expenses expenses expenses Total BALANCE AS AT 31.12.01 3,225.43 5,516.84 8,325.38 17,067.65 Change in scope of consolidation – 1,557.02 – 1,557.02 Additions – 977.98 841.08 1,819.06 Amortisation (101.55) (1,569.69) (3,413.04) (5,084.28) BALANCE AS AT 31.12.02 3,123.88 6,482.15 5,753.42 15,359.45 Adiditions 12.70 7,610.30 976.50 8,599.50 Amortisation (1,022.06) (1,815.10) (2,702.66) (5,539.82) Extraordinary write-offs – (5,520.67) – (5,520.67) BALANCE AS AT 31.12.03 2,114.52 6,756.68 4,027.26 12,898.46

15 7. INTANGIBLE ASSETS Set out below is an analysis and the movements on the different intangible asset accounts in 2003 and 2002 (thousand euros): INTANGIBLE ASSETS Balance Change in Balance Balance as at    the scope of Additions/ as at Additions/ as at 31.12.01   consolidation Charges Disposals Transfers 31.12.02 Charges Disposals Transfers 31.12.03 COST Rights of beneficial use 30,823.11 – 73.54 – – 30,896.65 78.57 – – 30,975.22 Lease premiums 9,217.80 – 16,840.15 – – 26,057.95 – (16,993.05) – 9,064.90 Concessions, patents and licences   26,116.68 3,753.27 334.45 – – 30,204.40 1,160.79 – – 31,365.19 Software 3,174.45 527.62 5,319.89 (264.74) 42.33 8,799.55 5,026.02 (663.46) – 13,162.11 Patents, trademarks and know-how 104.61 – – – – 104.61 165.95 (270.56) – – Rights to leased assets 16,319.60 – – (1,043.72) (876.26) 14,399.62 1,517.15 – (48.53) 15,868.24 85,756.25 4,280.89 22,568.03 (1,308.46) (833.93) 110,462.78 7,948.48 (17,927.07) (48.53) 100,435.66 ACCUMULATED AMORTISATION Rights of beneficial use (5,047.50) – (797.41) – – (5,844.91) (832.48) – – (6,677.39) Lease premiums (4,516.62) – (340.83) – – (4,857.45) (805.32) – – (5,662.77) Concessions, patents and licences   (7,051.12) (749.65) (1,278.31) – – (9,079.08) (317.16) – – (9,396.24) Software (1,530.77) (363.59) (128.14) 354.32 – (1,668.18) (3,904.57) 663.46 – (4,909.29) Patents, trademarks and know-how (60.18) – (20.92) – – (81.10) – 81.10 – – Rights to leased assets (636.38) – (401.99) 374.55 115.30 (548.52) (293.10) – 24.67 (816.95) (18,842.57) (1,113.24) (2,967.60) 728.87 115.30 (22,079.24) (6,152.63) 744.56 24.67 (27,462.64) NET BOOK VALUE 66,913.69 88,383.54 72,973.02 In 2002, the column "Change in scope of consolidation" records the balances of certain companies which were included in the Consolidated Group for the first time (see note 2 b). i)     Rights of beneficial use On 28 July 1994, NH Hoteles, S.A. set up a right of beneficial use on the Hotel NH Plaza de Armas Hotel in Seville owned by the Red Nacional de Ferrocarriles Españoles (RENFE), for a period of 30 years as from the date the agreement was signed.  The price to be paid for this by NH Hoteles, S.A. to RENFE is 30.20 million euros, in instalments that will be paid up to the year 2014. The Group has recorded under "Rights of beneficial use" all the amount agreed as the price for the operation and, in order to suitably record it in the respective financial periods, it takes the result of spreading the cost of the right over the thirty years of the term of the agreement to Consolidated Profit and Loss, using an amount that increases by 4% every year. In turn, the captions "Other debts" (see note 25) and "Other long-term trade creditors" (see note 21) on the accompanying  Consolidated  Balance  Sheet  record  the  amounts  pending  payment  as  at  31  December  2003,  which amount to 1.49 million euros and 14.95 million euros, respectively (1.49 million euros and 16.45 million euros as at 31 December 2002). ii)    Lease premiums In 2002, the column "Additions/Appropriations" records a total of 16.84 million euros for the assignation which has been provisionally  made  for  part  of  the  positive  difference  on  consolidation  that  arose  when  buying  the  additional  49% holding in the company AHORA, S.L. As the operation took place at the end of December 2002, the Group did not, at the year end, complete the work needed to assign, as far as possible, this positive gain on consolidation to the different tangible fixed assets acquired. Consequently, the Controlling Company provisionally assigned this difference to "Lease premiums" for the intangible assets as the companies Gran Círculo de Madrid, S.A. and Casino Club de Golf, S.L. both basically have administrative concessions.  The rest of the positive difference on consolidation was provisionally assigned to the caption "Goodwill on Consolidation" (see note 10).  Because of the nature of this assignment and of the fact that it was made at the end of December 2002, no amortisation was charged in 2002. During 2003 the companies Gran Circulo de Madrid, S.A. and Casino Club de Golf, S.L. were transferred to the company Sotogrande, S.A. and the company Promoción y Participación Empresarial Caja Madrid, S.A. later took a holding in Sotogrande, S.A. (see note 3b). As a result the differences on consolidation that arose at the end of 2002 have been written off (see note 10).

16 iii)   Rights over assets acquired under finance leases: The main assets under finance leases which are used by the companies of the Group as at 31 December 2003 are as follows: iv)   Computer applications In  2003,  the  column  "Additions/Appropriations"  chiefly  records  the  costs  incurred  in  the  project  to  install  a  new computer system in the Group during 2003 and 2002. 8. TANGIBLE FIXED ASSETS Set out below is an analysis and the movements on the different tangible asset accounts in 2003 and 2002 (thousand euros): RIGHTS OVER ASSETS ACQUIRED UNDER FINANCE LEASES (thousand euros) Instalments paid Term of the Year Original Prior Current Instalments Value purchase contract (years) elapsed cost years year outstanding option Land and building Hotel NH Dusseldorf 20 4 14,316.17 4,229.93 1,127.98 24,822.94 6,493.24 Furniture Hotel Príncipe de la Paz 4.2 0.4 1,516.21 – 270.87 1,626.69 31.11 In 2003 and 2002 the "Change in the scope of consolidation" column records the inclusion of the tangible fixed assets of certain companies which were included in the scope of consolidation of the Group for the first time during each of these years (see note 2 b). The most significant addition to the line "Change in consolidation scope" in 2002 was the balance as at 1 July 2002 of "Tangible fixed assets" of the four hotels acquired by the Company Nacional Hispana Hoteles, S.R.L. de C.V. (NH Mexico) which were included in the consolidation scope of the Group on 1 July 2002 and totalled 21.70 million euros. Also worthy of note is the inclusion of "Tangible fixed assets" of the Astron Group on 1 May 2002, amounting to approximately 16 million euros. TANGIBLE FIXED ASSETS Balance Change in Balance Change in Balance as at    the scope of Translation as at the scope of Translation as at 31.12.01   consolidation differences Additions Disposals 31.12.02   consolidation differences Additions Disposals 31.12.03 COST Land and buildings 1,256,056.21 19,781.71 (78,485.55) 25,486.60 (66,786.98)   1,156,051.99 11,951.79 (58,654.13) 32,412.82    (122,863.61)   1,018,898.86 Technical plant and machinery 282,754.63 9,654.61 (5,880.63) 27,769.47 (19,022.20) 295,275.88 1,203.20 (5,147.13) 41,583.42 (22,990.07) 309,925.30 Other plant, tools and furniture 210,031.49 14,408.57 (5,224.14) 22,285.43 (8,793.19) 232,708.16 733.10 (4,332.92) 15,722.48 (12,941.10) 231,889.72 Other investments 13,355.82 4,311.03 (962.06) 3,391.92 (3,006.38) 17,090.33 164.33 (832.95) 9,776.83 – 26,198.54 Fixed assets under construction  29,811.56 1,360.03 (6,818.92) 19,020.67 (14,678.58) 28,694.76 80.69 63.11 23,345.27 (26,895.46) 25,288.38 1,792,009.71 49,515.95 (97,371.30) 97,954.09  (112,287.33)   1,729,821.12 14,133.11 (68,904.02) 122,840.82  (185,690.24)   1,612,200.80 ACCUMULATED DEPRECIATION Constructions (145,615.48) (2,248.67) 17,790.89     (16,858.97) 4,009.35    (142,922.88) (4,263.51) 14,394.74 (9,663.23) 12,921.25    (129,533.63) Technical plant and machinery (118,289.06) (2,007.23) 3,105.03 (19,783.29) 8,027.14    (128,947.41) (2,759.91) 2,534.95 (16,908.49) 9,260.46 (136,820.40) Other plant, tools and furniture (109,852.80) (7,513.43) 2,367.59 (23,170.54) 10,826.57    (127,342.61) (1,373.65) 2,381.13 (20,773.47) 12,941.10 (134,167.50) Other investments (6.082,19) (2.375,01) 22,37 (1,724.92) 1,779.35 (8,380.40) (405.70) 21.04 (3,371.76) – (12,136.82) (379,839.53) (14,144.34) 23,285.88   (61,537.72) 24,642.41    (407,593.30) (8,802.77) 19,331.86    (50,716.95) 35,122.81    (412,658.35) NET BOOK BALUE 1,412,170.18 1,322,227.81 1,199,542.45