CHE Hotel has earmarked £800,000 of £18.6 million it raised from its shareholders in January to refurbish and restructure its Cobden Hotel on Hagley Road, Birmingham - at the same time turning it back to a temperance hotel, as it was as the flagship of the former Arden & Cobden Hotels.

The enclosed bar will be opened up to expand the reception area, while upstairs walls between a number of small bedrooms will be knocked down to create larger and better equipped rooms.

At the end of the work, the Cobden will still have 175 rooms.

CHE is also expanding its presence in Birmingham with a new "premium limited service" Sleep Inn near Star City. It should open in the Spring of next year.

This is part of an ambitious programme to modernise all CHE's hotels made possible by the fund-raising, which has doubled CHE's market value and following an initial £5 million fund-raising in September, 20004 and a £800,000 subscription for shares in January, 2005.

"We were encouraged by our major shareholders to come back again," said David Cook, chief executive.

"By the end of this year all the hotels will have been refurbished or improved," he added.

The financial benefits, though, will not flow through until 2007. Even then, CHE may not return to the divid end list immediately. "Shareholders told us not to rush back paying dividends," Mr Cook said yesterday.

Last year, CHE held its operating profit unchanged at £4.6 million.

Despite the London bombings in July and refurbishment work, which put a number of hotel rooms out of use, revenues slipped by only £400,000 to £79.2 million. Higher rates compensated for the smaller number of available rooms.

A release of earlier advance corporation tax provisions helped CHE to finish with an after-tax profit of £600,000, against a £200,000 loss the year before.

The shares slipped 1/2p to 44p, still well clear of the 41p paid for the new shares in January.

CHE - standing for Choice Hotels Europe - operates 58 owned, leased or managed hotels in the UK, france, Germany and Belgium. In the Midlands it has half a dozen outlets.

"In addition to the expansion of Sleep Inn, we will be looking for opportunities to grow the mid-market full service portfolio," Mr Cook stated yesterday.

"This sector continues to offer good growth opportunities, but there will be some rationalisation of existing properties as we refine our offering in this area."