Good day and thank you for standing by. Welcome to the Loews Corporation First Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. After the speakers' presentation, there will be a question and answer Please be advised that today's conference is being recorded. I would now like to hand the conference over to Mary Scoffidis, Vice President of Investor Relations and Corporate Communications for Loews.
Thank you, Lori, and good morning, everyone. Welcome to Loews Corporation's Q1 earnings conference Call. A copy of our earnings release, earnings supplement and company overview may be found on our website, loews.com. On the call this morning, we have our Chief Executive Officer, Jim Tisch and our Chief Financial Officer, David Adelson. Following our prepared remarks this morning, we will have a question and answer session with questions from shareholders.
Before we begin, however, I will remind you that this conference All might include statements that are forward looking in nature. Actual results achieved by the company may differ materially from those made are implied in any forward looking statements due to a wide range of risks and uncertainties, including those set forth in our SEC filings. Forward looking statements reflect circumstances at the time they are made. The company expressly disclaims any obligation to update or revise any forward looking statements. This disclaimer is only a brief summary of the company's statutory forward looking statements disclaimer, which is included in the company's filings with the SEC.
During the call today, we might also discuss non GAAP financial measures. Please refer to our security filings and earnings supplement for reconciliation to the most comparable GAAP measures. With that, I'd like to turn the call over to Jim. Jim, over to you.
Thank you, Mary, and good morning. What a difference a year makes. 12 months ago, we were all facing tremendous uncertainty about the future. A year later, while the personal, social and economic effects of COVID-nineteen are still impacting each of us individually and collectively, The outlook at Lowe's has significantly improved. Each of our subsidiaries has been affected differently by the pandemic, But across the board, their responses have been extraordinary and each business has found its footing in 2021.
First, let's look at our largest subsidiary, CNA. The company's operational strength and resilience is evident not only in its underlying combined ratio and rate increases, but also in its ability to respond nimbly to ongoing challenges. But its basic business continued to perform well. CNA's underlying combined ratio of 91.9 improved nearly 2 points over the prior year quarter of 93.7 with a 1.6 Percentage point improvement in the expense ratio. Rate continues to be strong with an 11% increase in the quarter.
CNA's investment portfolio ended the quarter with $4,300,000,000 in unrealized gains, Down from a high of $5,700,000,000 last quarter, primarily due to higher interest rates. Over the long term, higher interest rates will be beneficial to CNA, allowing it to invest its cash flow at higher rates than today. Boardwalk Pipelines has substantial operations in Texas, but the February storm had little financial impact on the company. Boardwalk's revenues slightly increased due to higher system utilization during the freeze off, as was the case with other companies in the natural gas transportation industry. The company's solid performance during this crisis was not a lucky accident.
Rather, it was a result of significant preparation, planning and hard work by the Boardwalk team. The company's considerable efforts paid off and Boardwalk was able to deliver gas to its customers with minimal disruption. Boardwalk's revenue increased to $370,000,000 in the Q1 of 2021 was due to growth projects that has been placed into service and the colder winter weather. Of all our subsidiaries, Loews Hotels has been hit the hardest by the pandemic. However, as travel picks up across the country, we are seeing gradual progress at Loews Hotels, especially at the company's resort destinations.
By the end of the Q1 of 2021, 23 of the company's 27 hotels were open. And further good news, the company expects to have hotels open in all its markets by the end of the second quarter. Comparing the Q1 of 2021 to the final quarter of 2020, we saw continued improvement in trends. The average daily room rate of our owned and JV hotels that are open increased by 25% to $2.34 Leisure travel continues to improve at a faster pace than business travel. And while we expect Circumstances will vary by hotel property.
Occupancy at hotels should increase gradually as the economy recovers from the pandemic. Loews Hotels has an ownership interest in nearly 15,000 rooms, approximately 11,000 of which are located in resort destinations. So we think that Loews Hotels is well positioned to benefit from this leisure led recovery. When acquiring a subsidiary, our long term goal is to have that subsidiary return capital to Loews when the time is appropriate. Loews acquired Altium in 2017 for $1,200,000,000 That was $600,000,000 in Equity and $600,000,000 in debt at the Altium level.
In February of 2021, Altium refinanced its term loans and replaced its roughly $850,000,000 of debt with a new 1,000,000,000,000 7 year term loan, allowing the company to pay $200,000,000 dividend to Lowe's. And a month later, on April 1, Lowe's sold a 47% stake in Altium to GIC, the Singapore Wealth Fund, for gross cash proceeds of $422,000,000 With these two transactions, Loews has recouped its entire initial investment in Altium, while still retaining a 53% ownership interest in the company. From a portfolio optimization standpoint, We felt the time was right for us to monetize a portion of Lowe's ownership stake in Altium. We believe strongly in the long term prospects of Altium's business and it's our opinion that the Altium management team is second to none in the industry. By retaining a majority ownership position, Loews will be able to capitalize on the future growth trajectory of the company.
Additionally, we have gained a strong and like minded partner in GIC. Under the new ownership structure, Altium has increased financial flexibility when it comes to larger acquisitions. Finally, so far in 2021, Loews has purchased more than 6,150,000 shares of our common stock at an average price of $49.58 per share for a total of $305,000,000 representing 2.3% of our outstanding shares. Many a time you've heard me bemoan the discount at which Lowe's trades. So I'll spare you the ramp this time and just let
us know. $1,000,000 or $0.97 per share, a sharp rebound from last year's Q1 net loss of $632,000,000 As a reminder, last year's net loss had 2 main drivers: One, investment results at CNA and the Loews parent company stemming from financial market disruptions as the pandemic And second, rig impairments at our former consolidated subsidiary, Diamond Offshore. This year's Q1 benefited from dramatically improved investment results at CNA and the parent company, Strong P and C underwriting income at CNA before catastrophe losses and favorable results posted by Boardwalk Pipelines. Also, the year over year comparison benefited from the absence of losses from the Diamond Offshore. Conversely, losses at Loews Hotels reduced quarterly results as the pandemic continued to mute travel and thus hotel demand.
Additionally, earnings in the corporate segment were reduced by some items related to Altium. Let me get into more detail about the quarter. CNA contributed net income of $279,000,000 up dramatically from a fifty $5,000,000 net loss in Q1 2020. The year over year turnaround was driven primarily by investment results, both net investment income and net investment gains. But before I discuss investment results, I wanted to highlight CNA's continued solid property casualty underwriting performance.
CNA's core property casualty business posted terrific underwriting results before catastrophe losses. Net earned premium was up almost 6% year over year and the combined ratio excluding cat losses was 91.3, 1.7 points better than last year's 1st was 59.5, an excellent result that was in line with last year's Q1 and with full year 2020. I would note that prior development was comparable this year and last with less than a point of favorable development in both periods. CNA's expense ratio, which together with the loss ratio makes up the combined ratio, which was 1.6 points better than in Q1 2020. The company's expense ratio improvement is notable and results from both expense management and premium growth.
As an historical footnote, the company's expense ratio in say 2017 was over 34%. So you can see how far CNA has come in a few short years. Catastrophe losses, however, were elevated during this year's Q1, Thanks largely to winter storms Yuri and Viola in Texas. CNA booked 6.8 points of cat losses in Q1, up from 4.3 points in last year's Q1. As a result, the company's overall combined ratio was up slightly to 98.1% from 97.3% last year.
I would highlight that CNA's Q1 cat losses were essentially in line with its market share in the affected areas. CNA's After tax net investment income increased $133,000,000 or 48 percent from last year, with common stocks and limited partnership investments accounting for the entire improvement. The S and P 500 returned 6.2% in this year's Q1 as compared to a negative 19.6 percent total return in Q1 of last year. The turnaround in CNA's net investment gains was substantial from losses of $216,000,000 in Q1 'twenty to investment gains of $57,000,000 in Q1 2021. Last year's large losses were mainly attributable to market value declines of non redeemable preferred stock as well as impairment losses on corporate bonds.
Taken together, The uplift in CNA's net investment income and the turnaround in its net investment gains benefited Loews' year over year net income by $306,000,000 In summary, CNA's investment and non cat underwriting results were Boardwalk posted an over 8% increase in net revenue and a net income contribution of $85,000,000 up from $65,000,000 in last year's Q1. Turning to Loews Hotels. While the company continues to suffer from the COVID induced downturn in travel, business is gradually improving as Jim described. The company posted a net loss of $43,000,000 in the quarter versus a net loss of $25,000,000 in Q1 2020. GAAP operating revenue was $39,000,000 down from $109,000,000 last year and the pre tax equity loss from joint venture as opposed to a $4,000,000 loss last year.
In last year's Q1, Business was quite strong during January February and into the 1st week of March, only to decline precipitously thereafter. So precipitously, in fact, that most properties suspended operations between March 19 the end of the quarter. To provide a comparative sense of the hotel company's results, let's look at adjusted EBITDA, which is defined and reconciled in our earnings supplement. It includes all properties and excludes non recurring items. Adjusted EBITDA was $61,000,000 in Q1 of 2019 declined to $17,000,000 in Q1 of 2020 and was a loss of $13,000,000 in this year's Q1.
The low point for profitability was last year's 2nd quarter When Loews Hotels posted an adjusted EBITDA loss of $54,000,000 Adjusted EBITDA has improved steadily since that low point as business has steadily come back. For a good Snapshot of this operational improvement. I would encourage you to review Page 11 of our quarterly earnings supplement, which shows the increase in available rooms, occupancy and average daily rate since Q2 last year. We currently expect, absent any divestitures or development projects, To make a net cash contribution to Loews Hotels of less than $80,000,000 in 2021, down materially From our earlier estimates, given better than anticipated cash quarter, we invested $32,000,000 in Loews Hotels. Turning to the corporate segment.
The parent company's investment portfolio generated net pre tax income of $46,000,000 as compared to a loss of $166,000,000 last year. Like its C and A, Equities and Alternatives led the decline last year and the rebound this year. The remainder of the corporate sector generated a $75,000,000 pretax and $106,000,000 after tax loss in the quarter. 2 main factors, both connected to Altium, drove this larger than normal loss. 1, Altium undertook a recapitalization during the quarter, Refinancing its existing term loans with a single $1,050,000,000 term loan.
The company booked a 14,000,000 pre tax debt extinguishment charge in connection with the recap and second, The sale of a 47% stake in Altium to GIC, which was pending at quarter end, required Loews to book a $35,000,000 deferred tax liability, which impacted net income, but not pre tax income. Diamond Offshore materially affected our year over year earnings comparison, given Diamond's $452,000,000 net loss in last year's Q1, driven largely by rig impairments. Diamond was consolidated effective April 26, 2020, and had no impact on our results this past quarter. A few words about the parent company. As always, we remain determined to maintain a strong and liquid balance sheet.
During the quarter, we repurchased 5,600,000 shares of our common stock for $274,000,000 and we received about 2 $74,000,000 in dividends from CNA in the quarter, including the $0.38 regular quarterly dividend and the $0.75 special dividend. We also received, as Jim mentioned, dollars 199,000,000 dividend from Altium pursuant to its recapitalization. The parent company portfolio of cash and investments stood at $3,600,000,000 at quarter end with about 80% in cash and equivalents. After quarter end, we received about $410,000,000 in net proceeds from the sale of 47 percent of Altium and have repurchased another 599,000 shares of common stock for about 32,000,000 Finally, let me clarify some details relating to the sale of a stake in Altium to GIC. The transaction price implied a total enterprise value of $2,000,000,000 for the company and a total equity value of about 900,000,000 As a reminder, we repurchased the company for a total enterprise value of $1,200,000,000 in 20.17 and have not invested any additional capital in Altium since the acquisition.
In the second quarter, Upon deconsolidation, we will book a net pre tax gain of approximately 560,000,000 which reflects both the net realized gain on the stake sold to GIC on our retained The 53% stake will be held as an equity investment in a non consolidated subsidiary at approximately $475,000,000 reflecting the valuation implied by the price paid by GIC for its 47% stake. I will now hand the call back to Mary.
Thank you, David. Moving on to the Q and A portion of the call, we have a number The first question goes to Jim. Jim, would you please comment on CNA's recent cyber attack?
Sure, Mary. On CNA's earnings call earlier today, Dino Robusto, the CEO of CNA mentioned that in March of 2021 that CNA had sustained what he called a sophisticated cybersecurity attack. The attack caused a network disruption and impacted some of CNA Systems. As soon as they detected the attack, the CNA took steps to address the incident, including among other things engaging a team of 3rd party forensic experts in notifying law enforcement and also key regulators. CNA has restored the network systems and resumed full normal operate to assess The full extent of the impact from the incident as well as determining any additional actions That it might take in order to improve its existing systems.
Based on what CNA knows now, it does not appear it's important, it does not appear that the cyber attack will have a material impact
Great. Thank you, Jim. The next question is also for you. Can you tell us why Lowe's decided to sell a
Follow-up optimization standpoint that we felt that the time was right for us to monetize a portion of our ownership in Altium. As I said in my remarks, our goal when acquiring a new subsidiary is to have it return capital to Loews when the time is right. And we thought the time was right now. Through Altium's dividend recap in February of this year And then with the sale of a 47% stake of the company to GIC, The Singapore Wealth Fund, we have recouped our entire initial equity investment in Altium. And we still own 53% of the company, which allows us to be able to participate in the company's future growth.
So, we fully believe in Altium's long term team at Altium is Truly top notch. And we've also added a strong partner in GIC and the new ownership structure provides Financial flexibility for Altium, especially if they pursue larger acquisitions.
Okay, great. Thank you, Jim. The next question is for David. David, can you please give us an update on the Boardwalk trial?
Sure, Mary. Not much to say here. The Boardwalk trial was held the week of February 22nd. Post trial oral arguments are scheduled for July 14 this year, After which, the judge will deliberate. And there's really nothing more to report at this time.
Okay. Thanks for the update. Next question is for Jim, also Boardwalk related. Jim, can you talk to us about Boardwalk's performance during the Texas storms?
Or as I call it, the Texas freeze off. So the impact of February's winter storm in Texas was Devastating for the people of Texas leaving many people without power or heat for the duration of the storm. To many planning hours that were dedicated to the preparation for such an event. And as a result, the company was Ready to deliver gas to customers on time during and through careful operational management and increased Staffing in a number of key areas. Boardwalk was able to successfully meet their customers' need for gas despite Low inflows into the Boardwalk Pipeline system.
As with the rest of the area, Boardwalk, The Boardwalk system faced historically low temperatures and widespread power outages, but was able to continue operating on Back up power when necessary. So they really performed admirably during that event.
Great. The next question is for David, and this question has become almost standard since The beginning of the pandemic. David, can you please give us an update on Loews Hotels on its business as well as cash required from the parent company?
Sure, Mary. I'll be a bit redundant with some of my prepared remarks. Loews Hotels' cash flow has improved materially. Properties have resumed operations. Management company and Property level expenses have been managed aggressively and capital spending has been right sized for the current environment.
The low point in Loews Hotels results was last year's Q2 when GAAP revenue was just 9,000,000 And adjusted EBITDA was a loss of $54,000,000 During this year's Q1, GAAP revenue was $39,000,000 and the adjusted EBITDA loss had been shrunk to just $13,000,000 And as I noted in my remarks, the table on Page 11 of our earnings supplement Does show how available Rome's occupancy and average daily rate have all increased quite markedly from last year's Q2. Now as a reminder in terms of cash, during all of last year, The Lowe's parent company contributed net cash of just over $150,000,000 to Lowe's Hotels. For 2021, the year we're currently in, we currently expect, absent any divestitures or development projects, to make a net cash contribution to Loews Hotels of less than $80,000,000 This is down materially, of course, from our earlier estimates given better than anticipated cash flow at Loews Hotels. And we've contributed in the Q1 $32,000,000 to the company. Overall, travel is picking up.
Confidence is growing as domestically and internationally. While business travel and Group meetings have yet to gain real momentum. Leisure travel to resort destinations in particular has picked up and is driving Loews Hotels' evolving rebound. And as Jim mentioned, with so many of its rooms located in resort destinations, Such as Orlando and Miami Beach, Loews Hotels is well positioned to continue benefiting as we move through the spring into the summer. Thanks, Mary.
Thank you, David. Our last question is for Jim. Jim, this is kind of a broader question, not Lowe's related necessarily, but can you give us an update on how you think the economy is doing? You don't like to look into your crystal ball typically, but if we persuade you to, what would it show
It reminds me of the old saying, he who lives by the crystal ball must learn to eat ground glass, but I will persevere nonetheless. So in my opinion, the economy is doing very well. Thank you. There's enormous pent up consumer demand and with the combination of government stimulus And vaccines that will add yet more fuel to this fire in the economy, this growth in the economy. For many in the middle and upper income classes, there was very little to spend on during the lockdowns.
There was no travel. There were no restaurants. There was no entertainment other than Netflix. And the savings rates for the time highs at close to 20%, which is Extraordinary considering that the norm is about 7.5%. In our hotel business, We're seeing the beginnings of the increase in travel.
In some areas, one of the chief constraints to increasing our So what I can foresee are double digit increases in GDP driven by consumer demand, But I can also see significant inflation coming from 2 very distinct sources. The first source is cost push inflation. Especially at the lower end of the pay grade, I see Significant increases in wages needed to get people back onto the job. As I said, we're having trouble finding people to work at Altium and likewise Loews Hotels. And to combat that, there has been serious increases in wages.
The other thing that's adding to the cost push inflation is that Commodities of all sorts are breaking out on the upside. There's copper, there's corn, iron ore, wood, Lumber, you name it, commodities are rallying. So businesses are experiencing A lot of increases in their inputs into what they sell. The second part of the inflation story, the demand pull inflation. I see I foresee significant consumer inflation coming from the easing of the pandemic And people making up for a loss year last year of spending.
So inflation that was 1.5 2%, in my opinion, could be significantly higher in the coming years because of the dramatic increase in demand combined with the dramatic increase in costs at businesses. So this is my base for the life of me, I don't Dan, what the Fed and what the Biden administration are doing. Let's start with the Fed. They've got their heads in the sand in my opinion. The economy is starting to boom, yet we have 0% short term interest rates, 0% and inflation is moving up.
And they're still managing the Fed is still managing Both medium and long term rates. So that 10 year notes are now under 160, inflation is significantly over that. And typically 10 year notes Traded a 200 to 300 basis point premium to inflation. So as a result, no one wants to own Term Treasury Securities. And in fact, the only people who are buying them are people who need to Own them, for example, insurance companies that have to have fixed income securities.
And the other major, major purchaser of those securities Is the Fed itself. My fear is keeping the proverbial punch bowl out for the revelers for much too long. In fact, they've said that that's exactly what they're doing. The Fed said that. And to me, it seems crazy.
With respect to fiscal policy, there are so many $1,000,000,000,000 proposals out there that I can't keep them straight. In Washington DC, modern monetary theory is the new paradigm. Modern Monetary Theory says that basically deficits don't matter, that the government can spend whatever It wants. My view, these politicians and Economists are truly kidding themselves. We as a nation are in an extended sugar high that is being elongated by the Fed and the administration's policies and I'm concerned that at some point down the road, We as a nation are going to have to pay a serious price for it.
So just to sum up, Increasing government spending and as I mentioned the cost push pressures and also The demand pull pressures, as a result of all of these factors, I see very strong growth For at least the next several quarters, combined with relatively high inflation, which makes me bearish on intermediate. So Mary, That's a brief summary of my view of where we are in the economy and where I see it going.
Thank you, Jim. And thank you all for joining us today. That concludes Will's call. As always, We appreciate your continued interest. Please feel free to reach out to me with any additional questions at mscafidas@lowes.com.
A replay will be available on our website of this call, loews.com, in approximately 2 hours. You may now disconnect.