5. Accounting policies Set out below are the main valuation rules, accounting principles and policies applied by the Group when drawing up these consolidated accounts: 5.1 TANGIBLE FIXED ASSETS Tangible fixed assets are stated at cost, less accumulated depreciation and any recognised loss for impairment, except for those dependent companies whose tangible fixed assets were acquired before 31 December 1983 where the cost price was revalued in accordance with various different legal provisions. Later additions have been stated at cost. At  the  time  of  the  changeover  to  IFRS,  the  Group  has  restated  at  fair  value  certain  pieces  of  land  based  on  assessments  made  by  an independent expert, by a gross total amount of 217 million euros. The revalued cost of this land has been regarded as cost in the changeover to the IFRS. The Group’s policy has been not to revalue any of its tangible fixed assets when closing its accounts for subsequent financial years. Set out below is the information concerning said revaluation: 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 consolidated expense as 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: 5.2 GOODWILL ON CONSOLIDATION The goodwill arising on consolidation represents the excess of the acquisition cost over the Group’s interest in the fair value of identifiable assets and liabilities of a subsidiary company, associated company or joint-venture on the date of acquisition. Any positive differences between the cost of the holdings in the capital of consolidated and associated companies and the corresponding theoretical book values acquired, adjusted on the date of first consolidation, are allocated as follows: 1  If they can be assigned to specific assets and liabilities of the companies acquired, increasing the value of the assets for which the fair values are higher than their net book values as recorded on said companies’ balance sheets. 2  If they can be assigned to specific intangible assets, by being explicitly recognised in the consolidated balance sheet provided that their fair value as at the date of acquisition can be reliably determined. 3  Any other differences that cannot be allocated are recorded as goodwill which is assigned to one or more specific cash-flow generating units (in general, hotels) which are expected to make a profit. Goodwill is only recorded when it has been acquired in return for valuable consideration. 23 consolidated annual accounts 05 Thousand euros Country Book value at origin Fair value Gain Tax effect Effect on Reserves Attributable to minority intererest Argentina 18,063 39,550 21,487 6,016 6,594 8,877 Belgium 3,484 16,108 12,624 631 11,993 - Spain 63,613 157,570 93,957 23,489 67,912 2,556 Netherlands 118,728 207,039 88,311 4,416 83,051 844 Switzerland 3,904 4,600 696 244 452 - Total 207,792 424,867 217,075 34,796 170,002 12,277 Estimated useful life in years Constructions 33-50 Plant and machinery 10-12 Other plant, tools and furniture 5-10 Other investments 4-5

The goodwill generated on the acquisition of associated companies is recorded in the accounts as an increased value of the holding. The goodwill generated on acquisitions made prior to the date of the changeover to the IFRS, 1 January 2004, remain at its net book value as recorded as at 31 December 2003 in accordance with Spanish accounting principles. Goodwill is not depreciated. In this regard, every year end, or whenever there are signs of decline in value, the Group will estimate, using the “Impairment test”, if there is a permanent impairment that reduce the recoverable value of the goodwill to below the net cost recorded. If this is the case, it is charged to the profit and loss account. Any write-down recorded cannot be reversed later on. In order to carry out this impairment test, all the goodwill is assigned to one or more cash-flow generating units.  The recoverable value of each cash-flow generating unit is calculated as the higher of the useful value and the net sale price that would be obtained in a transaction. The useful value is calculated based on estimated future cash flows, discounted at a rate that reflects the present market value with regard to the value of money and the specific risks associated with the asset. 5.3 INTANGIBLE ASSETS Intangible assets are defined as non-monetary assets that can be specifically identified, that have been acquired from third parties or have been developed by the Group. They are only recognised in the accounts when their cost can be estimated objectively and financial benefits are expected to be made from them in the future. They  are  deemed  to  have  an  “indefinite  useful  life”  whenever  it  is  concluded  that  they  will  contribute  indefinitely  to  the  generation  of benefits. All other intangible assets are deemed to have a “definite useful life”. Intangible assets with indefinite useful lives are not depreciated. They are therefore subject to the “impairment test” at least once a year, using the same criteria as for goodwill (see note 5.2). Intangible assets with defined useful lives are amortised on a straight-line basis, using the percentage rates of annual amortisation calculated on the basis of the estimated useful lives of the respective assets. “Intangible assets” records, fundamentally, the following items: i) “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) The “Lease premiums” records the amounts paid as a condition for obtaining certain leases contracts for hotels. These premiums are not rent on the lease and are written off on a straight-line basis over the term of the lease agreement. iii) “Concession, patents and trademarks” records, basically, the disbursements made by Gran Círculo de Madrid, S.A. on the construction work to renovate the building which houses the “Casino de Madrid”. The amortisation of this work is calculated on a straight-line basis 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 (1st January 2037). iv) “Software” includes different softwares that have been 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%. 5.4  IMPAIRMENT  IN  VALUE  OF  TANGIBLE  AND  INTANGIBLE  ASSETS  NOT  INCLUDING GOODWILL Every year, the Group makes a valuation of the possibility of value impairments that require that the book values of its tangible and intangible fixed assets be reduced.  An impairment is deemed to exist whenever the recoverable value is lower than the book value. The recoverable value is calculated as the higher of net sale value and useful value. The useful value is calculated based on estimated future cash flows, discounted at a rate that reflects the present market value with regard to the value of money and the specific risks associated with the asset. If it is estimated that the recoverable value of an asset is lower than its book value, its book value is written down to its recoverable value and the corresponding write-down is charged to profit and loss. In the event that a loss due to impairment is reversed later on, the amount recorded for the asset in books is written up to the limit of the original value at which said asset had been recorded prior to the recognition of said impairment in value. The information concerning said impairment is set out in Note 9 to these accounts. 24 consolidated annual accounts 05

5.5 LEASES The Group, in general, classifies all leases as operating leases. It only classifies them as financial leases when they substantially transfer the risks and advantages of ownership to the lessee and when, furthermore, the lessee holds an option to purchase the asset when the contract ends under terms that may be deemed to be clearly better than market terms. 5.5.1 OPERATING LEASES In operating leases, the ownership of the asset leased and substantially all the risks and advantages of ownership of the asset remain with the lessor. In this regard, the hotels operated under a lease agreement for a period longer than the estimated useful life of said assets solely for the purpose of their technical depreciation (see Note 5.1.), are regarded by the Administrators of the Controlling Company as operational given their particular characteristics and conditions of maintenance, which makes that their useful life were significantly higher. Whenever the Group is the lessee, the lease expenses are charged to profit and loss on a straight-line basis. 5.5.2 FINANCE LEASES The Group recognises financial leases as assets and liabilities on the balance sheet, on inception of the lease, at the market value of the leased assets or at the present value of the minimum lease instalments, whenever this is lower. To calculate the present value of the lease instalments, the contractual interest rate is used. The cost of the assets acquired under finance leases is presented on the consolidated balance sheet, according to the nature of the asset that is the object of the contract. Interest expense is distributed over the period of the lease on a pay-back basis. 5.6 FINANCIAL INSTRUMENTS 5.6.1 FINANCIAL ASSETS Financial assets are recognised on the consolidated balance sheet when they are acquired, and are recorded initially at their fair value. The financial assets maintained by the Group companies are classified as: -   Traded financial assets: are assets acquired by the companies for the purpose of making a short-term gain on changes in their prices or on  the  differences  between  their  purchase  and  sale  prices.  This  caption  also  includes  financial  derivatives  that  are  not  regarded  as accounting cover. -   Financial assets at maturity: assets for which the collections are for a fixed or determinable amount with preset maturity dates. The Group states that it intends and is able to hold these assets since they are purchased until they mature. -   Loans and accounts receivable generated by the company itself: financial assets originated by the companies in exchange for providing cash flow, assets or services directly to a debtor. Traded financial assets are stated at their “fair value” on the subsequent valuation dates, and any changes in their fair value are taken to profit and loss for the year. The fair value of a financial instrument on a particular date is defined as the amount at which it could be bought or sold on that date between two properly informed parties, acting freely and prudently on an arms’-length basis. Financial assets at maturity and loans and accounts receivable originated by the Company are stated at amortised cost. Accrued interest is taken to profit and loss on the basis of their effective rate of interest. Amortised cost is defined as the initial cost less the collections or repayments of the principal, taking into account any potential reductions for impairment or non-payment. 25 consolidated annual accounts 05

5.6.2 FINANCIAL LIABILITIES Bank loans Bank loans are recorded at the amount received, net of the direct costs of issue. They are subsequently stated at amortised cost. Financial expenses are recorded on the accruals basis in the profit and loss account using the effective interest method. Any amounts not settled in the period they occur are added to the amount of liabilities recorded in the books. Financial derivatives and accounting for hedges Hedges used to cover the risk to which the Group’s business is exposed, chiefly exchange rate and interest rate exposures, are stated at market value on the date they are contracted. Any subsequent changes in market value are recorded as follows: -   Differences arising in hedging items and hedged items in fair value hedges, in so far as they refer to the type of risk hedged against, are taken directly to the consolidated profit and loss account. -   For cash-flow cover, the differences in valuation arising in the efficient part of the cover of the hedging items are recorded on a transitional basis in the caption “Equity Valuation Adjustments - Cash flow hedge”. They are not taken to profit and loss until the losses or gains on the hedged item are taken to profit and loss or until the date the hedged item matures. The inefficient part of the cover is taken directly to the consolidated profit and loss account. Hedges stop being recorded in the accounts when the hedging instrument expires, or is sold, terminated or exercised, or no longer qualifies to be recorded as cover in the accounts. At that moment in time, any accumulated profit and loss corresponding to the hedging instrument that has been recorded in net equity is kept in net equity until the planned operation takes place. When the operation that is being hedged is not expected to take place, the accumulated net gains or losses recognised in net equity are taken to the profit and loss account of for the year. Any changes in the fair value of the financial derivatives that fail to qualify to be recorded as hedges in the accounts are taken to the consolidated profit and loss account as and when they occur. Financial derivatives implicit in other financial instruments or other main contracts are recorded separately as derivatives whenever their risks and characteristics are not closely linked to those of the main contracts and whenever said main contracts are not stated at their fair value with the changes taken to the profit and loss account. 5.7 INVENTORIES 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 IAS 11, 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. 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 Leisure 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. Hotel Business The food in the catering services is stated at the lower of cost or realisable value. 26 consolidated annual accounts 05

5.8 TRANSACTIONS AND BALANCES DENOMINATED IN FOREIGN CURRENCIES The Group uses the euro as its functional currency. Consequently, operations in currencies other than euro are deemed to be denominated in “foreign currency” and are recorded in accordance with the exchange rates prevailing on the date the operations are carried out. On every balance sheet date, the monetary assets and liabilities denominated in foreign currency are translated into the functional currency at the exchange rates prevailing on the balance sheet date. Any gains or losses that arise are taken directly to the profit and loss account. 5.9 CLASSIFYING FINANCIAL ASSETS AND DEBTS AS CURRENT AND LONG-TERM In the accompanying consolidated balance sheet, the financial assets and the debts are classified depending on when they fall due, as current when they fall due in or before twelve months and as long-term when they fall due after more than twelve months. 5.10 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. Specifically, income is calculated at the fair value of the consideration to be received and represents the amount receivable for the assets handed over or the services provided in the ordinary course of business, after deducting discounts and taxes. Interest income accrues on a pay-back basis, based on the principal outstanding and the applicable effective rate of interest. 5.11 OFFICIAL GRANTS The Companies of the Group have recorded grants received in accordance with the following criteria: -   Non-refundable capital grants (linked to assets) are stated for the amount granted. They are recorded as deferred income and released to income in proportion to the depreciation recorded during the year by the assets that are being financed by these grants. -   Operating grants are taken to the income statement when they accrue. 5.12 CORPORATION TAX The corporation tax expense for the year is calculated by adding the current tax resulting from applying the rate of taxation to the basis of assessment for the year after applying any allowable deductions, plus the change in deferred tax assets and liabilities. The deferred tax assets and liabilities include any temporary differences that are identified as the amounts that are expected  to become payable or collectible on the differences between the book values of the assets and liabilities and their tax values, as well as any tax loss carryforwards and credits for unused tax deductions. These amounts are recorded by applying the rate of taxation at which the corresponding timing difference or credit is expected to be refunded or paid. In some countries the rate of taxation varies depends on the form taken by the asset transfer.  In these cases the Group’s policy has been to apply the effective rate at which the tax is expected to be refunded or paid. The Administrators of the Group are of the opinion that, in this case, the deferred tax calculated covers any amount that may eventually be paid in tax. Deferred tax liabilities are recognised for all taxable temporary differences, except when the temporary difference comes from  the initial recognition of goodwill the write-downs on which are not tax deductible or the initial recognition of other assets and liabilities in operations that affect neither the tax result nor the book result. For  their  part,  deferred  tax  assets,  identified  with  temporary  differences  are  only  recognised  when  it  is  deemed  probable  that  the consolidated companies are going to recording sufficient taxable income in the future to be able to make them effective and do not stem from the original recognition of other assets and liabilities in an operation that affects neither the tax result nor the book result. All other deferred  tax  assets  (tax  loss  carryforwards  yet  to  be  offset  and  deductions  yet  to  be  used)  are  recognised  only  in  the  event  that  the consolidated companies are going to recording sufficient taxable income in the future to be able to make them effective. The deferred tax assets and liabilities recorded are reviewed every time accounts are closed, in order to check that they remain in force and to make whatever corrections may be appropriate on the basis of the results of the analyses carried out. 5.13 COMMITMENTS 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 prerequisites, who leave the company’s employ when they retire or become permanently disabled or reach a certain age. 27 consolidated annual accounts 05

For companies in the Group governed by a different agreement (property companies) there is an incentive for early retirement the amount which change depending on the number of years of service and the date of retirement. The   liabilities   accruing   on   these   commitments   to   staff   are   recorded   in   the   caption   “Provisions   for   charges   and   liabilities”   on   the accompanying consolidated balance sheet (see Note 22). 5.14 SYSTEMS OF REMUNERATION LINKED TO THE SHARE PRICE As indicated in Note 26, NH Hoteles, S.A. has implemented two share option plans for Administrators with executive duties, top managers and employees. These plans are settled in cash by differences.  The Group has calculated the market value of each right as at the concession date, taking into account the specific characteristics of these plan, using binomial valuation methods. Furthermore, until the liabilities are paid, the Group recalculates the fair value of the liabilities at the end of every year, and takes any recognised change in the value to the profit and loss account for the year. The charge to the consolidated profit and loss account for these plans in 2005 has involved an increase in staff expenses of 5,838 thousand euros. The balancing entry has been made in the account “Provisions for charges and liabilities - Provision for payments based on shares” under liabilities on the consolidated balance sheet (see Note 22). The  Group  has  contracted  a  derivative  (an  equity  swap)  on  its  own  shares  held  to  hedge  against  fluctuations  in  the  payments  of  the obligations that may arise as a result of the option plans contracted.  This derivative has been stated at fair value. The balancing account as at the date of first application is an equity account, and for subsequent periods in the profit and loss account for the same amount as the staff expense charged as there is efficient cover for the payment flows (see note 11.2.2). 5.15 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. 5.16 CONSOLIDATED CASH FLOW STATEMENTS The following terms with the following definitions are used in the consolidated cash flow statements, prepared using the indirect method: -   Cash  flows:  the  incomings  and  outgoings  of  cash  and  cash  equivalents.  Cash  equivalents  are  defined  as  high-liquidity  current-asset investments with little risk of change in value. -   Operating activities: the normal activities of the companies that make up the consolidated group, and any other activities that cannot be classified as capital expenditure or financing. -   Investment  activities:  the  activities  relating  to  the  acquisition,  or  disposal  by  other  means  of  long-term  assets  and  other  capital expenditures not included in cash and cash equivalents. -   Financing activities: the activities that give rise to changes in the size and structure of net equity and the liabilities that are not part of the operating activities. 6. Earnings per share The  basic  earnings  per  share  are  calculated  by  dividing  the  net  profit  attributed  to  the  Group  (after  taxes  and  minority  interests)  by  the weighted average number of shares outstanding during the year, as shown below: 28 consolidated annual accounts 05 Year 2005 Year 2004 Change Profit/(loss) for the year (thousand euros) 62,243 55,203 7,040 Weighted average number of shares issued (thousand shares) 119,533 119,533 - Weighted average number of own shares held (thousand shares) 215 644 (429) Weighted average number of shares outstanding 119,318 118,889 429 Basic earnings per share (euros) 0.52 0.46 0.06