17 consolidated annual accounts 05 1. Activity and structure of the controlling company NH HOTELES, S.A. (hereinafter the Controlling Company) was set up as a Spanish public limited company (“sociedad anonima”) in Spain on 23 December 1881 under the name “Material para Ferrocarriles y Construcciones, S.A.”, which subsequently changed its name to “Material y Construcciones, S.A.” (MACOSA) and later to “Corporación Arco, S.A.” During 1992, Corporación Arco, S.A. absorbed Corporación Financiera Reunida, S.A. (COFIR) and at the same time took the corporate name of the absorbed company and adapted the corporate object to the new activity of the Controlling Company, focused on managing its share portfolio. During  1998  Corporación  Financiera  Reunida,  S.A.  (COFIR)  merged  with  Grupo  Catalán,  S.L.  and  subsidiaries  and  Gestión  NH,  S.A.  in mergers where these companies were absorbed by COFIR. Corporación Financiera Reunida, S.A. (COFIR) later absorbed NH Hoteles, S.A. and took the corporate name of the absorbed company and extended its corporate object to allow it to carry out hotel activities directly, activities it was already carrying on indirectly through its subsidiary companies. The information relating to these mergers is set out in the annual accounts for the years in which these transactions took place. In October 1999 a Takeover Bid was made for 100% of the capital of Sotogrande, S.A. which has meant that at all times it has controlled over 75%. In 2000 the expansion strategy began, essentially in Europe, aimed at creating a strong world brand in the urban hotel segment. This began by integrating the Dutch Hotel firm “Krasnapolsky Hotels and Restaurants, N.V.”, continued with the acquisition of the Mexican company “Nacional Hispana de Hoteles, S.R.L. de C.V.” in June 2001 and was completed in 2002 with the purchase of the German hotel company Astron Hotels. Over the period 2003-2005, the Group has, by natural growth, entered several European markets, for instance Italy and Romania, and has entered  new  cities  such  as  London.  In  2005,  it  also  embarked  on  its  growth  strategy  in  the  quality  leisure  sector  with  a  high  real  estate component with projects in Cap Cana (Dominican Republic) and Rivera Maya (México). At the end of 2005 NH Hoteles was already present in 20 countries, with 260 hotels and 37,851 rooms, 78% of which are in Spain, Germany and the Benelux. NH Hoteles S.A.’s registered address is in Madrid. 2.  Basis  of  presentation  of  the  consolidated  annual accounts and accounting principles 2.1 CHANGEOVER TO THE INTERNATIONAL FINANCIAL REPORTING STANDARDS (IFRS) The consolidated annual accounts of the Group for the year ended on 31 December 2005 are the first to be drawn up in accordance with the International Financial Reporting Standards adopted by the European Union in accordance with the terms of Regulation (EC) Nº 1606/2002 of the European Parliament and in the Council on 19 July 2002, under which all companies governed by the Law of a Member State of the European Union with securities listed on an official market of any Member State, must file their consolidated returns for the years beginning as  from  1  January  2005  in  accordance  with  the  IFRS  that  have  been  adapted  by  the  European  Union.    In  Spain,  the  obligation  to  file consolidated annual accounts in accordance with the IFRS approved in Europe has also been set out in Statute Law in Final Provision Eleven of the Tax, Administrative and Social Measures Act, Law 62/2003, dated 30 December. These new rules entail, with regard to the rules in force when the consolidated annual accounts of the Group for 2004 were drawn up (General Plan of Accounts RD 1643/1990): -   Changes in accounting policies, valuation rules and method of presenting the financial statements that are part of the annual accounts. -   Including a statement of changes in consolidated net equity and a consolidated cash flow statement in the consolidated annual accounts. -   A significant increase in the amount of information provided in the notes to the consolidated annual accounts. 2.2 BASIS OF PRESENTATION OF THE ANNUAL ACCOUNTS The consolidated annual accounts for 2005, drawn up by the Administrators of NH Hoteles, S.A. at the meeting of the Board held on 30 March NOTES TO THE CONSOLIDATED ANNUAL ACCOUNTS FOR 2005

2006, have been obtained from the accounting records and the annual accounts of the Controlling Company and its Dependent Companies. These consolidated annual accounts have been prepared in accordance with the International Financial Reporting Standards (IFRS) adopted by  the  European  Union  in  accordance  with  the  terms  of  Regulation  (EC)  Nº  1606/2002,  of  the  European  Parliament  and  by  the  Tax, Administrative and Social Measures Act, Law 62/2003, dated 30 December, which gives a true and fair view of the net worth and the financial situation of the Group as at 31 December 2005 and the results of its operations, of the changes in net equity and of the cash flows that have occurred in the Group during the year ended on said date in accordance with accounting rules currently in force. The consolidated accounts of the Group and of the companies that make up the group for 2005 have yet to be approved by their respective General Meetings of Shareholders. However, the Administrators of the Controlling Company are of the opinion that these annual accounts shall be approved without significant changes. The international standards require that, for the sake of information, information for the previous year be presented prepared in accordance with the same bases and criteria as used for determining the figures for 2005. The information for 2004 set out in the notes to these accounts does not tally with the information recorded in the annual accounts approved by the General Meeting of Shareholder of NH Hoteles, S.A. held on 28 April 2005 for said year. In this regard, in accordance with the standard first applied, the date set for the changeover to the IFRS is 1 January 2004 recalculating the balances of the equity at the beginning and at the end of the previous year, as well as the profit and loss for that year in accordance with the international principles. Note 3 sets out the reconciliation of these balances calculated in accordance with accounting principles in force in Spain with the results of the application of international principles. 2.3 MAIN DECISIONS CONCERNING THE FIRST APPLICATION In accordance with the standard first applied, the Group has applied the IFRS fully, apart from the following exceptions provided for in said standards: -   Business combinations: IFRS 3 shall not apply retrospectively to any business combinations that took place prior to the changeover date (1 January 2004). -   The Group has decided, on the date of the changeover to the IFRS, to state part of its tangible fixed assets at fair value, deeming this value to be the market cost attributed on said date, in accordance with IFRS 1, based on the assessment made by an independent expert. -   The balance of translation differences as at January 1st 2004 has been cancelled. This cancellation has been recorded as a reduction in the value of the reserves of the consolidated companies where said differences originated. -   Financial instruments: the Group has decided to apply IAS 32 and 39 as from January 1st 2005, as allowed by said Standards. Their application essentially involves: a) Classifying own shares held, the balance of which was 259 thousand euros on that date, as a lower value of net worth. b) Stating derivative contracts at their market value, recording an increase in net worth of 3,492 thousand euros. 2.4 CURRENCY OF PRESENTATION These annual accounts are expressed in euros. Operations denominated in foreign currencies are recorded in accordance with the criteria set out in Note 5.8. 2.5 RESPONSIBILITY FOR THE INFORMATION AND ESTIMATES MADE The information set out in these annual accounts is the responsibility of the Administrators of the Controlling Company. The consolidated annual accounts of the Group for 2005 and 2004 have used estimates made by Group Management and the management of the consolidated companies (subsequently ratified by their Administrators) to quantify some of the assets, liabilities, income, expense and commitments recorded in said accounts. These estimates basically refer to: -   Losses on certain asset impairments -   The assumptions used in the actuarial calculation of the pension liabilities and other commitments with regard to personnel -   The useful life of tangible and intangible fixed assets -   The valuation of goodwill on consolidation -   The market value of certain assets These estimates were made based on the best information available as at 31 December 2005 for the events analysed. However, events may occur in the future that require their modification, which shall be done in accordance with the terms of IAS 8. 18 consolidated annual accounts 05

2.6 CONSOLIDATION PRINCIPLES APPLIED 2.6.1 DEPENDENT COMPANIES Dependent companies are defined as those companies included in the scope of consolidation which are directly or indirectly managed by the Controlling Company because it holds a majority of the voting rights in the representative and decision-making bodies and is able to exercise its control, which ability is shown when the Controlling Company has powers to direct the financial and operational powers of an investee company for the purpose of making a profit from its activities. The  annual  accounts  of  the  dependent  companies  are  fully  consolidated  with  those  of  the  Controlling  Company.  Consequently,  all  the balances  and  effects  of  intercompany  transactions  with  these  companies  that  are  significant  have  been  eliminated  in  the  consolidation process. The share of the minority shareholders in the equity and profit and loss of the Group are presented respectively under “Minority Interests” on the consolidated balance sheet and on the consolidated profit and loss account. The profit and loss of dependent companies acquired or disposed during the year are included in the consolidated profit and loss account as from the effective date of their acquisition or as from the effective date of their disposal, according to the case. Paragraph 2.6.6 of this Note provides information about the most significant acquisitions and disposals that have taken place in 2005 and 2004. 2.6.2 JOINT VENTURES Joint ventures are defined as ventures in which the investee companies are managed jointly by the Controlling Company and by third parties who  are  not  related  to  the  Group,  where  none  of  them  have  more  control  than  the  other.  The  annual  accounts  of  joint  ventures  are consolidated using the proportional method so that the aggregation of balances and the subsequent eliminations are made in the same proportion as the holding of the Group in the capital of said ventures. Whenever necessary, the financial statements of these companies are adjusted to bring their accounting policies into line with those used by the Group. 2.6.3 ASSOCIATED COMPANIES Associated companies are defined as companies where the Controlling Company has powers to exercise a significant influence, albeit neither control nor joint control. In general, significant influence is deemed to exist whenever the percentage of the (direct or indirect) holding of the Group exceeds 20% of the voting rights, whenever it does not exceed 50%. In the consolidated annual accounts, associated companies are consolidated using the equity method, i.e. for the fraction of their net worth that represents the Group’s holding in their capital, after taking into account any dividends received and any other equity eliminations. 2.6.4 VALUATION OF CONSOLIDATED COMPANIES AT THE TIME THEY ARE PURCHASED Until 1 January 2004, date on which the NH Group changed over to the IFRS, the differences between the cost of acquiring holdings in consolidated companies and their theoretical book value on the date of purchase that could not be allocated as to increase or decrease the value of particular assets and liabilities up or down to their market value, were included, whenever positive, in the caption “Goodwill” on the consolidated balance sheet. For acquisitions of dependent companies and joint ventures made after the date the IFRS came into force, the assets and liabilities of the companies acquired are calculated at their market values on the date of acquisition. Any excess cost of acquiring the net identifiable assets acquired over and above their market values, is included in the caption “Goodwill” on the consolidated balance sheet. Goodwill generated in acquisitions of associated companies is recorded as an increased value of the holding. 2.6.5 TRANSLATION OF FOREIGN CURRENCY The different captions of the balance sheet and the profit and loss account of the foreign companies that have been included in the scope of consolidation have been translated into euros using the following criteria: 19 consolidated annual accounts 05

-   Assets and liabilities have been translated at the official year-end exchange rate. -   Equity has been translated applying the historical exchange rate. The historical exchange rate of the companies included in the scope of consolidation prior to the changeover date has been deemed to be the rate of exchange prevailing on 31 December 2003. -   The profit and loss account has been translated using the average exchange rate for the year. The differences resulting from applying these criteria have been included in the caption “Translation differences” under “Net Worth” caption of the consolidated balance sheet. The adjustments made as a result of applying the IFRS when a foreign company is acquired, with regard to the market value and the goodwill are deemed to be assets and liabilities of that company and, therefore, are translated at the year-end rate of exchange. 2.6.6 CHANGES IN THE SCOPE OF CONSOLIDATION Set out below are the most significant changes in the scope of consolidation during 2005 and 2004 that affect the comparison of figures from one year to the next: a. Changes in the scope of consolidation during 2005 Additions: During  January  2005  the  minority  shareholder  of  Nacional  Hispana  de  Hoteles,  S.R.L.  de  C.V.  exercised  its  put  option  on  its  shares, representing 38% of the share capital of that company, for an amount of 33 million euros, as a result of which the direct and indirect holding of NH Hoteles rose to 78.03%. No further goodwill at all was generated as a result of this operation. On April 1st 2005 the Group paid 1,259 thousand euros for a 25% holding in the share capital of Harrington Hall Ltd.  This company operates the NH Harrington Hall hotel in London under a lease agreement. Furthermore, on April 6th 2005 the Group acquired the remaining 20% of NH Hoteles Deutschland, GmbH and NH Hoteles Austria, GmbH for a total of 45 million euros. Further goodwill totaling 16,690 thousand euros has arisen as a result of this acquisition (see Note 7). On June 28th 2005 the company Caribe Puerto Morelos, S.A. de C.V. was set up with its registered address in Mexico City. This company, together with the company Promociones Marina Morelos, S.A. de C.V., with registered address in Cancun, has as its object the development of two hotels and a real estate project in Rivera Maya (Mexico). The NH Group currently has a 20% holding in Promociones Marina Morelos, S.A. de C.V. and a 90% holding in Caribe Puerto Morelos, S.A. de C.V., although the shareholder structure of this latter company has not been fully defined and is likely to change in the short term. On November 3rd 2005, the Group Company NH Hotel Rallye, S.A. acquired the companies Corporación Hotelera Dominicana, S.A. and Corporación Hotelera Oriental, S.A. both of which have their registered address in Santo Domingo. NH Hotel Rallye, S.A. has a 50% holding in  these  companies.  The  other  shareholder  is  the  company  Cap  Cana,  S.A.  These  two  companies  have  been  set  up  for  the  purpose  of developing a real estate and a hotel project in La Altagracia province, in the Dominican Republic. The shareholder structure of this company has not been fully defined and is likely to vary in the short term. Set out below are the companies that have been included by the Group as consolidated companies during the year: -   Caribe Puerto Morelos, S.A. de C.V. -   Promociones Marina Morelos, S.A. de C.V. -   Corporación Hotelera Dominicana, S.A. -   Corporación Hotelera Oriental, S.A. -   NH Romania S.R.L. (Hotel NH Bucharest and NH Timisoara) -   Inmobiliaria y Financiera Aconcagua, S.A. (Hotel Crillón, Buenos Aires) -   Atardecer Caribeño, S.L.U. (company that manages the hotels in Cayo Coco) -   Fast Good América, S.L. -   Fast Good Península Ibérica, S.L. -   Cofir, S.L. -   NH Domo, S.L. -   Desarrollo Inmobiliario Santa Fé México, S.A. de C.V. Retirements: During  2005  the  companies  Desarrollo  Hotelero  Lázaro  Cárdenas,  S.A.  de  C.V.  and  Servicios  Inmobiliarios  de  Balsas,  S.A.  de  C.V.,  the companies that own the NH Lázaro Cárdenas Hotel, were sold and therefore were taken out of the scope of consolidation. The result of these operations is not significant. Furthermore, during 2005 Shuaa Hotels, BV has merged with its parent company NH Participaties, BV. 20 consolidated annual accounts 05

b. Changes in the scope of consolidation in 2004: Additions During 2004 the following companies were set up and included in the scope of consolidation: -   NH Hoteles Italia, S.r.L. -   Residencial Marlin, S.L. Retirements During 2004, the companies Hotelera Chicome, S.A. de C.V. and Servicios Corporativos Krystal Cancún, S.A. de C.V., the companies that own the NH Krystal Cancún Hotel, which was sold on February 4th 2004, were taken out of the scope of consolidation. A provision was set up to cover the entire loss on these operations at the end of 2003. 3. Reconciliation of the opening and closing balances of 2004 (changeover to the IFRS) 2005 is the first financial year for which the Group is presenting its annual accounts in accordance with IFRS. The last annual accounts to be presented in accordance with Spanish principles were for the year ended on December 31st 2004. The date for changing over to IFRS is therefore January 1st 2004. Set  out  below  is  the  reconciliation  of  consolidated  net  equity  as  at  January  1st  2004  and  as  at  December  31st  2004,  together  with  the reconciliation of consolidated profits for 2004: 3.1. RECONCILIATION OF NET EQUITY 21 consolidated annual accounts 05 Thousand euros (**) 01.01.04 31.12.04 Net Equity according to accounting principles and standards generally accepted in Spain in force on the date (*) 613,271 620,287 Net revaluations of buildings and constructions 127,714 125,433 Tax assets recognised 4,406 3,835 Start-up expenses written off (9,904) (6,897) Adjustment real estate sales (8,232) (1,079) Leases on a straight-line basis (9,198) (9,806) Depreciation reversal and goodwill impairment - 470 Pension plan (5,139) (5,120) Written-off provisions (26,000) (17,188) Total impact on net worth 73,647 89,648 Net equity attributable to Shareholders of the Controlling Company according to IFRS 686,918 709,935 Minority interests 133,067 137,266 Total Net Equity according to IFRS 819,985 847,201 (*) Obtained from the consolidated accounts for 2004 (**) Amounts net of fiscal effect

The changes in the net equity of NH Hoteles Group between January 1st and December 31st 2004, under principles generally accepted in Spain in force on said dates and under IFRS, are as set out below: 3.2. RECONCILIATION OF THE CONSOLIDATED PROFITS FOR 2004 (*) Obtained from the consolidated accounts for 2004 4. Distribution of net result The application of profit/(loss) for 2005 proposed by the Board of Directors of the Controlling Company, is as follows: The distribution of the result for 2004 is set out in the Statement of Changes in Consolidated Net Equity. 22 consolidated annual accounts 05 Principles generally accepted in Spain IFRS Net equity as at Jan 1st 2004 613,271 686,918 Consolidated profit for 2004 42,132 55,203 Distribution of dividends (29,882) (29,882) Change in the translation reserve (5,496) (2,788) Change in the own shares reserve 262 262 Other movements - 222 Net equity (before minority interests) as at Dec 31st 2004 620,287 709,935 Thousand euros Consolidated profit for 2004 according to accounting principles and standards generally accepted in Spain in force on the date (*) 42,132 Tax assets written off (482) Adjustments to depreciation and amortisation charges 782 Adjustment of real estate sales 7,153 Leases on a straight-line basis (608) Reversal of charges and retirements of provisions 5,756 Reversal of goodwill depreciation 470 Total impact on profit and loss 13,071 Consolidated profit for 2004 according to IFRS 55,203 Thousand euros Accumulated losses (37,115) Loss of the Controlling Company (37,115) Reserves in Fully consolidated companies 98,765 Companies consolidated using the proportional method (56) Companies consolidated using the equity method 649 Profit of the Consolidated Group 62,243