The Stafford hotel in London is to undergo a multimillion-pound extension and refurbishment.
Owner Shire Hotels has bought the building next to the hotel for £10.5m and will develop it into additional bedrooms, including 26 luxury suites.
Work is due to begin in 2006, and £12m will be spent on the project, which will take two years to complete.
The 25-year-old hotel group recorded financial results for the year to March 2005 showing net profit up by £1.5m on the previous year - an increase of almost 24%.
A mix of strong leisure demand, solid corporate business and the hotels' food and beverage sales (up nearly £13m - 5% more than the previous year) were cited as a major profit contribution.
Company chairman Ann Yerburgh said: "Our strategy is to continue to invest in improving our properties, together with developing the skills and strengthening the commitment of all our people."