Euros 000s Country Book value Fair value Capital gain Effect on Reserves Attributable to minority interests Argentina 18,063 39,550 21,487 6,594 8,877 Belgium 3,484 16,108 12,624 11,993 - Spain 63,613 157,570 93,957 67,912 2,556 Netherlands 118,728 207,039 88,311 83,051 844 Switzerland 3,904 4,600 696 452 - 207,792 424,867 217,075 170,002 12,277 Years estimated useful life Constructions 33-50 Plant and machinery 10-12 Other plant, tools and furniture 5-10 Other fixed assets 4-5 NH Consolidated financial statements 2006 22 4 ACCOUNTING POLICIES Set out below are the main valuation rules, accounting principles and policies applied by the Group when drawing up these consolidated accounts: 4.1 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 restated in accordance with different legal provisions. Later additions have been stated at cost. At the time of the transition to IFRS, the Group restated at fair value certain pieces of land based on assessments made by an independent expert, in a gross total amount of 217 million euros. The restated cost of this land has been regarded as cost in the transition 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 expansions 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  thereof.  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: 4.2 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 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. 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 transition to the IFRS, 1 January 2004, remains at its net book value as recorded as at 31 December 2003 in accordance with Spanish accounting principles. Goodwill is not amortised. 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 income statement. Any write-off 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 from the assets associated with the cash-flow generating unit. The useful value is calculated based on estimated future cash flows, discounted at a rate before taxes that reflects the present market value with regard to the value of money and the specific risks associated with the asset. The discount rates used by the NH Hoteles Group for these purposes are between 7.5% and 9%, depending on the different risks associated with each specific asset. 4.3 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  reliably determined 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 amortised. They are therefore subject to the “impairment test” at least once a year, using the same criteria as for goodwill (see note 4.2). Intangible assets with defined useful lives are amortised on a straight-line basis 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 income statement over the 30 years of the term of the contract at a rate that is increasing by 4% a year. ii)  “Lease premiums” records the amounts paid as a condition for obtaining certain leases contracts for hotels 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  of  the  concession  contract  for  operating  and  managing  the  services provided in the building where the “Casino de Madrid” is housed (which expires on 1 January 2037). iv) “Software” includes different software 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%. 4.4 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 before taxes that reflects the present market value with regard to the value of money and the specific risks associated with the asset. The discount rates used by the NH Hoteles Group for these purposes are between 7.5% and 9%, depending on the different risks associated with each specific asset. If it is estimated that the recoverable value of an asset is lower than its book value, its book value is written off to its recoverable value and the corresponding write off is charged to the income statement. 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 impairment charges recorded in 2006, is set out in Note 8 to these accounts. NH Consolidated financial statements 2006 23

4.5 Leases In general the Group 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. 4.5.1 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, for the purpose of their technical depreciation (see Note 4.1.), are regarded by the Directors of the Parent Company as operating leases  given  their  particular  characteristics  and  conditions  of  maintenance,  which  makes  their  useful  life  significantly  higher. Whenever the Group is the lessee, the lease expenses are taken to the income statement on a straight-line basis. 4.5.2 Finance leases The Group recognises finance 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. 4.6 Financial instruments 4.6.1 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 hedges. - 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 or for supplying assets or services. Traded financial assets are carried after their acquisition at their “fair value”, and any changes in their fair value are taken to income 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 arm’s 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 the income statement 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. 4.6.2 Cash and other cash equivalents This caption of the consolidated balance sheet records cash at hand, deposits and other highly liquid short-term investments that can be quickly converted into cash and with no risk of a change of value. 4.6.3 Financial liabilities Bank loans Bank loans are recorded at the amount received, net of the costs incurred in the transaction. They are subsequently stated at amortised  cost.  Financial  expenses  are  recorded  on  the  accruals  basis  in  the  income  statement  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. Trade creditors and other accounts payable Trade accounts payable are initially recorded at their fair value and, later, are carried at amortised cost using the effective interest rate method. NH Consolidated financial statements 2006 24

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 the hedges 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 income statement. - For cash-flow hedges, the differences in valuation arising in the effective part of the hedge are recorded on a transitional basis in the caption “Equity Valuation Adjustments - Cash flow hedge”. They are not taken to the income statement until the losses or gains on the hedged item are taken to income or until the date the hedged item matures. The ineffective part of the hedge is taken directly to the consolidated income statement. 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 income statement of 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 income statement as they occur. Financial  derivatives  implicit  in  other  financial  instruments  or  other  main  contracts  are  recorded  separately  as  derivatives  just when 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 income statement. 4.7 Inventories The various different categories of stocks have been stated using the following criteria: Real estate business - Sotogrande (see Note 11) 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. 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: 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. Hotel business The food in the catering services is stated at the lower of cost or realisable value. 4.8 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 income statement. 4.9 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. NH Consolidated financial statements 2006 25

4.10 Income and expense Income and expenses are recorded on an accrual 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 and expenses accrue on a pay-back basis, based on the principal outstanding and the applicable effective rate of interest. 4.11 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. 4.12 Corporation tax The corporation tax expense for the year is calculated by adding the current tax resulting from applying the tax rate 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  timing  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 pending 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 Directors 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 timing differences, except when the timing difference comes from the initial recognition of goodwill on which the write offs 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 timing differences are only recognised when it is deemed probable that the consolidated companies are going to record sufficient taxable income in the future to be able to make them effective and do not come 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 compensated) 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 in every closing, 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. 4.13 Commitments to staff The Spanish companies in the hotel and restaurant trade are required to pay a certain number of months’ pay to employees of certain seniority and who meet certain prerequisites when they leave the company’s employ, retire, become permanently disabled or reach a certain age. The liabilities accruing on these commitments to staff are recorded in the caption “Provisions for liabilities and charges” on the accompanying consolidated balance sheet (see Note 20). On 31 December 2006, according to Royal Decree Law 16/3005, the Group externalised the aforesaid commitments, financing the whole of services accrued previously. 4.14 Onerous contracts The  NH  Hoteles  Group  classifies  as  onerous  contracts  those  agreements  in  which  the  unavoidable  costs  of  performing  the obligations stipulated therein exceed the economic benefits it expects to receive under the contracts. NH Consolidated financial statements 2006 26

The NH Hoteles Group policy is to record a provision for the present value of the aforesaid difference between the costs and benefits of a contract. The pre-tax discount rates used reflect the present value of the money in the market, and the specific risks of these contracts; specifically, rates between 7.7% and 9% have been used. 4.15 Compensation Plans based on share price As  indicated  in  Note  24,  NH  Hoteles,  S.A.  has  implemented  two  compensation  plans  based  on  the  share  trading  price,  for Directors with executive duties, senior managers and employees. In general, 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 plans, using binomial valuation methods, taking that value to the income statement on a straight-line basis over the period between concession of the compensation and exercise of the right. 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 income statement for the year. The charge to the consolidated income statement for these plans in 2006 has involved an increase in staff expenses of 5,977 thousand  euros.  The  balancing  entry  has  been  made  in  the  account  “Provisions  for  liabilities  and  charges  -  Provision  for Compensation Plan based on share price” under liabilities on the consolidated balance sheet (see Note 20). The Group has contracted a derivative (“equity swap”) to hedge against fluctuations in the payments of the obligations that may arise as a result of the compensation 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 income statement for the same amount as the staff expense charged as there is efficient cover for the payment streams (see Note 4.6.3). 4.16 Own shares held as treasury stock The  NH  Hoteles  Group  own  shares  held  as  treasury  stock  which  are  carried  at  their  cost  of  acquisition  and  at  year-end  are recognised as a decrease in the heading “Net equity– Own shares” of the consolidated balance sheet. Profits and losses obtained by the Group on disposal of own shares are recorded under “Share premium” on the consolidated balance sheet. 4.17 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. 4.18 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  inflow  and  outflow  of  cash  and  cash  equivalents.  Cash  equivalents  are  defined  as  high-liquidity  short-term 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. NH Consolidated financial statements 2006 27

NH Consolidated financial statements 2006 28 2006 2005 Change Profit/(loss) for the year (000s euros) 62,448 62,243 0.33% Weighted average number of shares issued (000s shares) 122,209 119,533 2.24% Weighted average number of own shares held (000s shares) 76 215 -64.65% Weighted average number of shares outstanding 122,133 119,318 2.36% 0.51 0.52 -1.98% Net Net goodwill Translation goodwill 31.12.04 Additions difference 31.12.05 NH Hoteles Deutschland, GmbH and NH Hoteles Austria, GmbH 91,984 16,690 - 108,674 Nacional Hispana de Hoteles, S.R.L. de C.V. 3,130 - 46 3,176 Others 1,720 - 16 1,736 96,834 16,690 62 113,586 Net Net goodwill Translation goodwill 31.12.05 Additions (Retirements) difference 31.12.06 NH Hoteles Deutschland, GmbH and NH Hoteles Austria, GmbH 108,674 - - - 108,674 Nacional Hispania de Hoteles, S.R.L. de C.V. 3,176 - - 42 3,218 Others (Note 2.4.6.a) 1,736 984 (223) 13 2,510 113,586 984 (223) 55 114,402 2006 2005 NH Hoteles Deutschland, GmbH and NH Hoteles Austria, GmbH 108,674 108,674 Nacional Hispana de Hoteles, S.R.L. de C.V. 3,218 3,176 Others 2,510 1,736 114,402 113,586 5 EARNINGS PER SHARE The basic earnings per share is 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: 6 GOODWILL The balance recorded under this caption is for the net goodwill that has arose on the purchase of certain companies. Shown below is the breakdown of this balance (in thousands of euros): Set out below is the movement in this chapter of the consolidated balance sheet in 2006 and 2005 (in thousand euros): The recoverable value of the goodwill of NH Deutschland, GmbH and NH Hoteles Austria, GmbH has been allocated to each cash  flow  generating  unit  using  projections  for  results,  capital  expenditures  and  working  capital,  for  the  remaining  years  of operation of the lease agreements of the hotels. All other recoverable values of remaining goodwill have been assigned to each cash flow generating unit using five-year forecasts and applying a methodology similar to that used for NH Deutschland, GmbH and NH Hoteles Austria, GmbH goodwill.

NH Consolidated financial statements 2006 29 7 INTANGIBLE ASSETS Shown below are the breakdown and the movements on the different intangible asset accounts in 2006 and 2005 (in thousands of euros): 7.1 Rights of beneficial use On 28 July 1994, NH Hoteles, S.A. established 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 properly time allocate that price, it takes the result of spreading the cost of the right over the thirty years of the term of  the agreement to the consolidated income statement, using an amount that increases by 4% every year. In turn, the captions “Other current  liabilities”  and  “Other  long-term  liabilities”  (see  Notes  23  and  18)  on  the  accompanying  consolidated  balance  sheet record the amounts pending payment in the short and long term as at 31 December 2006, which amount to 1.49 million euros and 10.47 million euros, respectively (1.49 million euros and 11.96 million euros as at 31 December 2005). 7.2 Lease premiums In 2006, the column “Additions/Allocations” records 632 thousand euros, mainly in respect of the premium paid to obtain various lease contracts for hotels located in Germany. These premiums are written off on a straight-line basis over the term of the related contracts, which range between 15 and 19 years. 7.3 Software The  column  “Additions/Allocations”  chiefly  records  the  costs  incurred  in  the  project  to  install  a  new  computer  system  in  the Group during 2006 and 2005. Change in Balance at Additions/ Balance at scope of Additions/ Balance at 31.12.04 Allocations Disposals 31.12.05 consolidation Allocations Disposals Transfers 31.12.06 COST Rights of beneficial use 31,057 81 - 31,138 - - (65) - 31,073 Lease premiums 13,403 559 - 13,962 742 632 (44) - 15,292 Concessions, patents and trademarks 30,668 287 (138) 30,817 (2) 3,632 (5) (218) 34,224 Software 17,031 3,390 (33) 20,388 (10) 2,367 (113) 218 22,850 92,159 4,317 (171) 96,305 730 6,631 (227) - 103,439 ACCUMULATED AMORTISATION Rights of beneficial use (7,676) (912) - (8,588) - (934) - - (9,522) Lease premiums (4,486) (448) 75 (4,859) (109) (1,626) - - (6,594) Concessions, patents and trademarks   (10,171) (884) 86 (10,969) 1 (1,368) 372 - (11,964) Software (7,859) (4,652) 19 (12,492) 3 (3,723) 111 - (16,101) (30,192) (6,896) 180 (36,908) (105) (7,651) 483 - (44,181) NET BOOK VALUE 61,967 59,397 59,258