Managing an Underperforming Senior Team Member Who Used to Be My Peer

"I was promoted to Director of PM six months ago, and I'm struggling with managing Sarah, who used to be my peer and is now one of my direct reports. We used to be work friends, but her performance has seriously declined over the past few months. She's missing deadlines, submitting incomplete work, and other team members are complaining about having to pick up her slack. When I try to give her feedback, she becomes defensive and brings up our past friendship, saying things like 'I thought you'd have my back' or deflecting by reminiscing about 'the good old days.' I've tried being gentle and understanding, but nothing's improving. We have performance reviews coming up, and I know I need to give her some tough feedback, but I'm worried about damaging our relationship permanently and creating tension in the team. Plus, she knows a lot of people in the organization from her 8 years here. How do I handle this professionally while preserving both our dignity?"