SEVN

Seven Hills is an externally-managed (Tremont/RMR) mortgage REIT originating floating-rate first mortgages on middle-market transitional CRE. The bull case is valuation: with $329M of equity against 22.6M shares, book value is ~$14.6/share, so the $8.57 price is roughly 0.6x book, the P/E is 8.6x on $1.00 diluted EPS, and FY2025's $18.8M of dividends against a 22.6M share count implies a high-single/low-double-digit yield. Leverage is conservative for the sector (liabilities/equity 1.50x) and liquidity is strong — cash jumped 74.5% to $123M, funding an 18.5% rise in total assets to $821M as management grows the loan book.

The problem is that the earnings power backing that cheap multiple is shrinking. Revenue has fallen four straight years ($38.4M → $29.4M) and dropped 16.7% in FY2025, with net income down 13.4% to $15.4M and EPS off 16.7%. The MD&A explains why: this is a floating-rate lender, and 'three interest rate cuts by the FOMC in 2025' reset coupons lower — lower rates directly compress interest income. ROE is just 4.7%, weak for a levered lender. Worse, the 51.6% surge in shares outstanding (equity grew only 22%) means the capital raise diluted book value per share — prior-year book was ~$18/share — so the discount-to-book partly reflects value the company gave away issuing stock below book.