KKR Real Estate Finance Trust is planning to majorly restructure its portfolio this year.

In what was described as a "year of transition" by CEO Matt Salem on KREF's Q4 earnings call, the mortgage REIT aims to sell off troubled assets on its internal watchlist — struggling loans and most of the properties it owns through foreclosure — so its discounted stock price will be given more value.

Its portfolio stands at $5.4B, with multifamily and industrial assets accounting for 58%.

"The goal is to get through and monetize or liquidate the vast majority of that watchlist," Salem said on the call.

The list includes a Cambridge life sciences property and San Diego multifamily building. They have carried over from last quarter’s list, but their risk rating was downgraded from a 4, or unsatisfactory rating, last quarter to a 5, which is the lowest and considered troubled. Also at 5 are a Boston life sciences property, Minneapolis office and San Diego multifamily building. Their total principal is $572M. A Chicago office rounds out the list, the only asset that remains at 4.

The Boston property’s loan is in talks to be modified with its borrower but is expected to be downgraded because of its outstanding principal balance of $229.6M. Its next maturity date is in August.

Among the properties KREF owns and is looking to sell are a luxury condo in West Hollywood, California; a multifamily building in Raleigh, North Carolina; a Philadelphia office; a Portland, Oregon, retail asset; and a Seattle life sciences building.

"We feel like we're in a good position on much of that portfolio to be able to liquidate that over the course of this year," Salem said about the company’s owned assets.

KREF's life sciences exposure is a potential problem but something the firm said it plans to be patient with. It is projecting a recovery period of five years for the sector and said it is optimistic about the future of its life sciences assets in Seattle and Boston.

The life sciences sector isn’t doing well. The biggest real estate company in the space, Alexandria, reported a $1.1B loss in the fourth quarter. Overall vacancy dipped for the first time in three years during the fourth quarter, but the drop was only 0.4% and vacancy still sits at 23.4%.

Salem said on the call that even though KREF expects most of its loan sponsors will commit the significant capital needed to modify loans on life sciences properties, it will sell off those loans if it can’t negotiate modifications it is comfortable with.

KREF originated $424M in new loans in the fourth quarter. The amount was above its $380M in repayments. This year, that strategy is getting tweaked to focus more heavily on repayments. It aims to drop $1.5B on them during 2026, more than that of the last two years.

Shares of KREF dropped from $7.88 to $7.32 following the earnings call and stood at $7.24 as of Tuesday afternoon.