For 2021, we see the data center sector as well positioned to continue its rise in relevance and growth (despite recent share price pullbacks), driven by enterprise momentum. We identify the data center environment to be presenting a major buying opportunity for medium to long-term investors and highlight the following key drivers and observations embedded in our 2021 Outlook:  Multi-Tenant Data Centers (MTDC) to See Solid Growth Due to Increasing Enterprise Strength in 2021, But Expect it in 2H: We believe industry commentary/channel checks suggest that enterprise demand momentum should strengthen into 2021, acting as a strong tailwind versus 2020 performance, which was partially hindered by COVID-19, albeit still maintaining a solid backdrop. Robust enterprise demand by 2H21 would boost both colocation and interconnection revenues for Outperform-rated EQIX, DLR, COR, and SWCH. We view that enterprise demand will be especially strong in 2021 for a couple main reasons – (1) demand looked to be solid heading into 2020, but COVID-19 altered some plans for expansion, as many companies deploying in smaller retail colocation environments chose to be cautious with spend in an uncertain environment; and (2) COVID-19 then acted as an accelerant for digital transformation, turning many enterprises to a WFH model, and growing gaming and video streaming to new heights. All in, we believe the stars are aligned for enterprise demand to accelerate in 2H 2021E creating a favorable situation for MTDCs. Importantly, see our 1Q21 channel checks slide to grasp the 2021 dynamics for timing.

 Hyperscale Capex Spend Projected to Grow 14.7%/5.4% in 2021E/2022E, Driving More Business to MTDCs: Hyperscale Capex is a leading indicator for the Multi-Tenant Data Center industry largely because ~60% (2020 assumption) of all data center space, power, cooling, and interconnection is outsourced to third party data centers (MTDCs) rather than built and maintained by the cloud service providers (insourcing). We expect this percent of outsourcing to begin indexing closer to the ~50% range through 2021E, largely a by-product of the vast scale the MTDCs have gained over the last five years, driving even more business to MTDCs, especially wholesale providers that have specialized in large scale data center developments across top tier markets. Notably, across Tier 1 European Markets cloud providers have been reported to outsource almost 100% of capacity as they seek to collaborate with experienced operators when globally expanding.

 Backlog Intensity Has Surged Above 2018 Highs: MTDC backlogs remain high as of 4Q20, and backlog intensity (backlog / last quarter’s annualized revenue) has leveled at 8.5%, above the last major high water mark levels seen in mid-2018 (6.4% in 3Q18). We expect intensity to come down slightly in 2021E as major data center builds are delivered to customers, commencing backlog revenues. Review: Using history as a guidepost, following the 1H18 high backlog intensity levels, 2019 was a year of pronounced outperformance with strong commenced leases, revenue growth, and further follow-on leasing activity, strengthening the financial visibility and supply chains of MTDCs. We expect 2021E to see similar characteristics as 2019, a year that several publicly traded data centers outperformed market indices and comparable asset classes.

 Valuation – Following a Cooling Period, Data Centers Are on Sale: Data Center shares are trading at 19x EV/FY+2 EBITDA, versus their August 2020 peak of 22x and we think this presents an attractive entry point opportunity given the aforementioned indicators/dynamics and the fundamental strength yet to come in a lease commencement year of major backlog builds. Note, we believe it is possible that DC REITs could remain a victim to broader sector rotation, however we believe this dynamic has mostly played out and it will take a backseat to inflections in data center topline, EBITDA, and AFFOS growth as the year goes on, resulting in a share price momentum throughout 2021.

Key Stock Picks:  COR (Outperform, $156 Target Price, 28% upside) – Following challenged lease renewal pricing and elevated churn in the last two years, churn, lease renewal rates, and overall revenue growth are set to improve in 2021 based on company guidance and our review of enterprise end market dynamics.

 EQIX (Outperform, $942 Target Price, 38% upside) – As EQIX extends its scale more easily and establish itself with a wider spectrum of channel partners, its interconnection revenues should grow at 2x the colocation market revenues through 2024 and EQIX remains the dominant interconnection vendor globally. All in, a premium multiple is warranted, in our view.

 SWCH (Outperform, $19 Target Price, 10% upside) – Longer-term, we expect SWCH to grow ahead of MTDC peers on revenue and EBITDA, despite churn headwinds in 2021, due to its highly power-dense facilities which address large workload applications. Despite its strong growth outlook, SWCH still trades at a meaningful discount to the peer group.

 DLR (Outperform, $167 Target Price, 17% upside) – We are constructive due to strong hyperscale/enterprise demand, improving renewal spreads, and better European positioning (InterXion assets). We expect DLR’s development yields to climb to the 12%+ range given these factors and increased cross-selling.