UNITED
STATESSECURITIES
AND EXCHANGE COMMISSIONWASHINGTON,
D.C. 20549





---





FORM 10-K/A

(Amendment No. 1)



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|☒ | ANNUAL
                                         REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | -----------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                              
|  | For
                                         the fiscal year ended December 31, 2018                                         



or



|☐ | TRANSITION
                                         REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934         
|- | ------------------------------------------------------------------------------------------------------------------------------------------
|  |                                                                                                                                           
|  | For
                                         the Transition Period from           
                                         to           .



Commission
file number 000-55778





---



MOODY
NATIONAL REIT II, INC.(Exact
name of registrant as specified in its charter)



---



|Maryland                                                                          | 47-1436295                                                  
|--------------------------------------------------------------------------------- | ------------------------------------------------------------
|(State
                                         or other jurisdiction of          | (I.R.S.
                                         Employer   
|incorporation
                                         or organization)           | Identification
                                         No.)
|                                                                                  |                                                             
|6363
                                         Woodway Drive, Suite 110            |                                                             
|Houston,
                                         Texas                           | 77057                                                       
|(Address
                                         of principal executive offices) | (Zip
                                         Code)         
|                                                                                  |                                                             



(713)
977-7500(Registrant’s
telephone number, including area code)





---







Securities
registered pursuant to Section 12(b) of the Securities Exchange Act of 1934:



None



Securities
registered pursuant to Section 12(g) of the Securities Exchange Act of 1934:



Common
Stock, $0.01 par value per share





---







Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No
☒



Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act. Yes ☐ No ☒



Indicate
by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒  No ☐



Indicate
by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant
to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit
such files). Yes ☒ No ☐



Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of the registrant’s knowledge, in definitive proxy or information statements incorporated by reference
in Part III of this Form 10-K or any amendment to this Form 10-K. ☐



Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or emerging growth company. See definitions of “large accelerated filer,” “accelerated filer,”
“smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act (check one):



|Large
                                         accelerated filer ☐ | Accelerated
                                         filer ☐        
|------------------------------------------------------------------ | --------------------------------------------------------------------
|Non-accelerated
                                         filer ☐   | Smaller
                                         reporting company ☒
|                                                                   | Emerging
                                         growth company ☒  



If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☒



Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒



There
is no established market for the registrant’s shares of common stock. The registrant is currently conducting an ongoing
initial public offering of its Class A shares, Class I shares and Class T shares of common stock pursuant to a Registration Statement
on Form S-11, which shares are being sold at $23.19 per share. The registrant was formed on July 25, 2014, and commenced its initial
public offering on January 20, 2015. There were 4,750,286 shares of common stock held by non-affiliates at June 30, 2018, the
last business day of the registrant’s most recently completed second fiscal quarter.



As
of March 12, 2019, there were 11,203,284 shares of the Registrant’s common stock issued and outstanding, consisting of 10,797,933
shares of Class A common stock, 89,423 shares of Class I common stock, and 315,928 shares of Class T common stock.




















EXPLANATORY NOTE



Moody National REIT II,
Inc. (the “Company”) filed its Annual Report on Form 10-K for the fiscal year ended December 31, 2018 (the “Original
Filing”) with the Securities and Exchange Commission (the “SEC”) on March 29, 2019. The Company is filing this
Amendment No. 1 to the Original Filing (this “Amendment”) with the SEC for the sole purpose of revising the Report
of Independent Registered Public Accounting Firm of Frazier & Deeter, LLC, the Company’s independent auditors (the “Report”),
contained in Part IV, Item 15 of the Original Filing. The revised Report includes a statement regarding the length of Frazier &
Deeter, LLC’s tenure as the Company’s independent auditors that was inadvertently omitted from the version of the Report
included in the Original Filing. The inclusion of the inadvertently omitted tenure statement does not in any way change the conclusions
expressed by Frazier & Deeter, LLC in the Report.



Pursuant to Rule 12b-15
of the Securities Exchange Act of 1934, as amended, new certifications by the Company’s principal executive officer and the
principal financial officer, as required by Section 302 and Section 906 of the Sarbanes-Oxley Act of 2002, each dated as of the
filing date of this Amendment, are included as Exhibits to this Amendment.



Except as described
above, this Amendment does not reflect events that may have occurred after the date of the Original Filing and does not revise,
supplement or supersede in any way the disclosures made in the Original Filing. This Amendment should be read in conjunction with
the Original Filing and with the Company’s subsequent filings with the SEC.











MOODY
NATIONAL REIT II, INC.TABLE
OF CONTENTS





|PART IV 
|--------
|Item 15.

















PART
IV



|ITEM 15. | Exhibits and Financial
Statement Schedules
|-------- | ------------------------------------------



The
following documents are filed as part of this Annual Report:



|(a) | List
of Documents Filed
|--- | -----------------------



| | (1) | The
financial statements contained herein begin on page F-1 hereof
| | --- | ------------------------------------------------------------------



| | (2) | Financial
Statement Schedules                                                                                                                                                                             
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |     |                                                                                                                                                                                                           
| |     | Schedule
III – Real Estate Assets and Accumulated Depreciation is set forth on page F-31 hereof.                                                                                                          
| |     |                                                                                                                                                                                                           
| |     | All
other schedules for which provision is made in the applicable accounting regulations of the SEC are not required under the related
instructions or are not applicable and therefore have been omitted.



| | (3) | Exhibits
| | --- | --------



1





EXHIBIT
INDEX



|Exhibit
Number |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.1            |  | Agreement
and Plan of Merger, dated as of November 16, 2016, among Moody National REIT II, Inc., Moody National Operating Partnership II,
LP, Moody National Advisor II, LLC, Moody Merger Sub, LLC, Moody National REIT I, Inc., Moody National Operating Partnership I,
LP and Moody National Advisor I, LLC (incorporated by reference to Exhibit 2.1 to the Current Report on Form 8-K filed November
17, 2016)                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|2.2            |  | Amendment
No. 1, dated as of August 9, 2017 to the Agreement and Plan of Merger, dated as of November 16, 2017, by and among Moody National
REIT II, Inc., Moody National Operating Partnership II, LP, Moody Merger Sub, LLC, Moody National Advisor II, LLC, Moody National
REIT I, Inc., Moody National Operating Partnership I, L.P., and Moody National Advisor I, LLC (incorporated by reference to Exhibit 2.1
to the Current Report on Form 8-K filed on August 10, 2017)
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3.1            |  | Articles
of Amendment and Restatement of Moody National REIT II, Inc. (incorporated by reference to Exhibit 3.1 to Pre-Effective Amendment
No. 3 to the Registration Statement (defined below) filed January 12, 2015 (“Pre-Effective Amendment No. 3”))                                                                                                                                                                                                                         
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3.2            |  | Articles
of Amendment to the Articles of Amendment and Restatement of Moody National REIT II, Inc. (incorporated by reference to Exhibit 3.1
to the Current Report on Form 8-K filed on June 13, 2017)                                                                                                                                                                                                                                                                           
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3.3            |  | Articles Supplementary
    to the Articles of Amendment and Restatement of Moody National REIT II, Inc. (incorporated by reference to Exhibit 3.2 to
    the Company’s Current Report on Form 8-K filed on June 12, 2017)                                                                                                                                                                                                                                                        
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|3.4            |  | Bylaws
of Moody National REIT II, Inc. (incorporated by reference to Exhibit 3.3 to the Registration Statement on Form S-11 (File No.
333-198305) filed on August 22, 2014 (the “Registration Statement”))                                                                                                                                                                                                                                                                       
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.1            |  | Form
of Subscription Agreement (included in Appendix B to prospectus and incorporated by reference to Exhibit 4.1 to Post-Effective
Amendment No. 2 to the Registration Statement filed January 15, 2016 (“Post-Effective Amendment No. 2”))                                                                                                                                                                                                                                     
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|4.2            |  | Second
Amended and Restated Distribution Reinvestment Plan of Moody National REIT II, Inc. (incorporated by reference to Exhibit 4.1
to the Current Report on Form 8-K filed on June 13, 2017)                                                                                                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.1           |  | Amended
and Restated Limited Partnership Agreement of Moody National Operating Partnership II, LP (incorporated by reference to Exhibit
10.1 to the Current Report on Form 8-K filed on May 26, 2016 (the “May 26, 2016 Form 8-K”))                                                                                                                                                                                                                                              
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.2           |  | Moody
National REIT II, Inc. 2015 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.4 to Pre-Effective Amendment No.
3)                                                                                                                                                                                                                                                                                                                                          
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.3           |  | Moody
National REIT II, Inc. Independent Directors Compensation Plan (incorporated by reference to Exhibit 10.5 to Pre-Effective Amendment
No. 3)                                                                                                                                                                                                                                                                                                                                
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.4           |  | Assignment
Agreement, dated September 25, 2015, by and between Moody National REIT I, Inc. and Moody National REIT II, Inc. (incorporated
by reference to the Company’s Quarterly Report on Form 10-Q filed with the SEC on November 16, 2015)                                                                                                                                                                                                                                   
|               |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|10.5           |  | Agreement
of Purchase and Sale, made as of May 11, 2015, by and between Mueller Hospitality, LP and Moody National REIT I, Inc. (incorporated
by reference to Exhibit 10.7 to Post-Effective Amendment No. 2)                                                                                                                                                                                                                                                                    



2





|10.6  |  | Assignment
and Assumption of Agreement of Purchase and Sale, dated as of October 15, 2015, by and between Moody National REIT II, Inc. Moody
National Lancaster-Austin Holding, LLC and Moody National Lancaster-Austin MT, LLC (incorporated by reference to Exhibit 10.8
to Post-Effective Amendment No. 2)                                                                                            
|----- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.7  |  | Hotel
Lease Agreement, effective October 15, 2015, between Moody National Lancaster-Austin Holding, LLC and Moody National Lancaster-Austin
MT, LLC (incorporated by reference to Exhibit 10.9 to Post-Effective Amendment No. 2)                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.8  |  | Hotel
Management Agreement, effective October 15, 2015, between Moody National Lancaster-Austin, LLC and Moody National Hospitality
Management, LLC (incorporated by reference to Exhibit 10.10 to Post-Effective Amendment No. 2)                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.9  |  | Relicensing
Franchise Agreement, dated October 15, 2015, between Marriott International, Inc. and Moody National Lancaster-Austin MT, LLC
(incorporated by reference to Exhibit 10.11 to Post-Effective Amendment No. 2)                                                                                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.10 |  | Loan
Agreement, dated as of October 15, 2015 between Moody National Lancaster-Austin Holdings, LLC and KeyBank National Association
(incorporated by reference to Exhibit 10.12 to Post-Effective Amendment No. 2)                                                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.11 |  | Guarantee
Agreement, dated as of October 15, 2015 by and among Brett C. Moody, Moody National REIT II, Inc. and KeyBank National Association
(incorporated by reference to Exhibit 10.13 to Post-Effective Amendment No. 2)                                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.12 |  | Environmental
Indemnity Agreement, dated as of October 15, 2015, by and among Moody National Lancaster-Austin Holding, LLC, Brett C. Moody,
Moody National REIT II, Inc. and KeyBank National Association (incorporated by reference to Exhibit 10.14 to Post-Effective Amendment
No. 2)                                                                                                                 
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.13 |  | Assignment
and Assumption of Agreement of Purchase and Sale, dated January 28, 2016, by and between Moody National Companies, L.P. and Moody
National REIT II, Inc. (incorporated by reference to Exhibit 10.16 to Post-Effective Amendment No. 3 to Moody National REIT II,
Inc.’s Registration Statement on Form S-11 (File No. 333-198305) filed on April 21, 2016 (“Post-Effective Amendment
No. 3”))
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.14 |  | Agreement
of Purchase and Sale, dated as of October 26, 2015, by and among Moody National SHS Seattle MT, LLC, certain Fee Owners, and Moody
National Companies, LP (incorporated by reference to Exhibit 10.17 to Post-Effective Amendment No. 3)                                                                                                                                                       
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.15 |  | Assignment
and Assumption of Agreement of Purchase and Sale, dated May 24, 2016, by and between Moody National REIT II, Inc., Moody National
Yale-Seattle Holding, LLC and Moody National Yale-Seattle MT, LLC (incorporated by reference to Exhibit 10.2 to the May 26, 2016
Form 8-K)                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.16 |  | Hotel
Lease Agreement, effective May 24, 2016, between Moody National Yale-Seattle Holding, LLC and Moody National Yale-Seattle MT,
LLC (incorporated by reference to Exhibit 10.3 to the May 26, 2016 Form 8-K)                                                                                                                                                                                         
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.17 |  | Hotel
Management Agreement, effective May 24, 2016, between Moody National Yale-Seattle MT, LLC and Moody National Hospitality Management,
LLC (incorporated by reference to Exhibit 10.4 to the May 26, 2016 Form 8-K)                                                                                                                                                                                  
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.18 |  | Promissory
Note, dated May 24, 2016, by Moody National Yale-Seattle Holding, LLC in favor of KeyBank National Association (incorporated by
reference to Exhibit 10.5 to the May 26, 2016 Form 8-K))                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.19 |  | Loan
Agreement, dated as of May 24, 2016, between Moody National Yale-Seattle Holding, LLC and KeyBank National Association (incorporated
by reference to Exhibit 10.6 to the May 26, 2016 Form 8-K)                                                                                                                                                                                                     
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.20 |  | Guaranty
of Recourse Obligations Agreement, made as of May 24, 2016 by and among Brett C. Moody, Moody National Operating Partnership II,
LP, Moody National REIT II, Inc. in favor of KeyBank National Association (incorporated by reference to Exhibit 10.7 to the May
26, 2016 Form 8-K)                                                                                                             
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                          
|10.21 |  | Guaranty
of Payment Agreement, made as of May 24, 2016 by and among Brett C. Moody, Moody National Operating Partnership II, LP, Moody
National REIT II, Inc. in favor of KeyBank National Association (incorporated by reference to Exhibit 10.8 to the May 26, 2016
Form 8-K)                                                                                                                          



3





|10.22 |  | Deed
of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of May 24, 2016, by and among Moody
National Yale-Seattle Holding, LLC, Old Republic Title, Ltd. For the benefit of KeyBank National Association (incorporated by
reference to Exhibit 10.9 to the May 26, 2016 Form 8-K)       
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                                                
|10.23 |  | Environmental
Indemnity Agreement, made as of May 24, 2016, by and among Moody National Yale-Seattle Holding, LLC, Brett C. Moody, Moody National
Operating Partnership II, LP, Moody National REIT II, Inc. in favor of KeyBank National Association (incorporated by reference
to Exhibit 10.10 to the May 26, 2016 Form 8-K)
|      |  |                                                                                                                                                                                                                                                                                                                                
|10.24 |  | Relicensing
Franchise Agreement, dated as of May 24, 2016, between Marriott International, Inc. and Moody National Yale-Seattle MT, LLC (incorporated
by reference to Exhibit 10.11 to the May 26, 2016 Form 8-K)                                                                                                              



|10.25 |  | Promissory
Note, dated September 20, 2016, by Moody National Yale-Seattle Holding, LLC in favor of KeyBank National Association (incorporated
by reference to Exhibit 10.1 to Moody National REIT II, Inc.’s Current Report on Form 8-K, filed on September 26, 2016 (the
“September 26, 2016 Form 8-K”))                                                                            
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.26 |  | Loan
Agreement, dated as of September 20, 2016, between Moody National Yale-Seattle Holding, LLC and KeyBank National Association (incorporated
by reference to Exhibit 10.2 to the September 26, 2016Form
8-K)                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.27 |  | Guaranty
Agreement, made as of September 20, 2016, by Moody National REIT II, Inc. in favor of KeyBank National Association (incorporated
by reference to Exhibit 10.3 to the September 26, 2016 Form 8-K)                                                                                                                                                                           
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.28 |  | Deed
of Trust, Assignment of Leases and Rents, Security Agreement and Fixture Filing, dated as of September 20, 2016, by and among
Moody National Yale-Seattle Holding, LLC, Old Republic Title, Ltd., for the benefit of KeyBank National Association (incorporated
by reference to Exhibit 10.4 to the September 26, 2016 Form 8-K)                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.29 |  | Environmental
Indemnity Agreement, made as of September 20, 2016, by and among Moody National Yale-Seattle Holding, LLC, Moody National REIT
II, Inc. in favor of KeyBank National Association (incorporated by reference to Exhibit 10.5 to the September 26, 2016 Form 8-K)                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.30 |  | First
Amendment to Hotel Lease Agreement, effective as of September 20, 2016, between Moody National Yale-Seattle Holding, LLC and Moody
National Yale-Seattle MT, LLC (incorporated by reference to Exhibit 10.6 to the September 26, 2016 Form 8-K)                                                                                                                                
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.31 |  | Amended
and Restated Advisory Agreement, dated as of November 16, 2016, by and among Moody National REIT II, Inc., Moody National Operating
Partnership II, LP and Moody National Advisor II, LLC (incorporated by reference to Exhibit 10.1 to the Current Report on Form
8-K, filed on November 17, 2016)                                                                          
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.32 |  | Termination
Agreement, dated as of November 16, 2016, by and among Moody National REIT I, Inc., Moody National Operating Partnership I, L.P.,
Moody National Advisor I, LLC, Moody National Realty Company, L.P., Moody OP Holdings I, LLC and Moody National REIT II, Inc.
(incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K, filed on November 17, 2016)
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.33 |  | Second
Amended and Restated Advisory Agreement, dated as of June 12, 2017, by and among Moody National REIT II, Inc., Moody National
Operating Partnership II, LP and Moody National Advisor II, LLC (incorporated by reference to Exhibit 10.1 to the Current
Report on Form 8-K filed on June 13, 2017)                                                                            
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.34 |  | Second
Amended and Restated Limited Partnership Agreement of Moody National Operating Partnership II, LP (incorporated by reference to
Exhibit 10.2 to the Current Report on Form 8-K filed on June 13, 2017)                                                                                                                                                                        
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.35 |  | Moody
National REIT II, Inc. Amended and Restated Long-Term Incentive Plan (incorporated by reference to Exhibit 10.3 to the Current
Report on Form 8-K filed on June 13, 2017)                                                                                                                                                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                                                      
|10.36 |  | Promissory
Note, dated August 15, 2017, by Moody National International-Fort Worth Holding, LLC in favor of Moody National Operating Partnership
II, LP (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on August 18, 2017)                                                                                                                       

4





|10.37 |  | Promissory
Note, dated September 6, 2017, by Moody National 1 Polito Lyndhurst Holding, LLC in favor of Moody National Operating Partnership
II, LP (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed on September 12, 2017)                                                                                                                                                                      
|----- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.38 |  | Term
Loan Agreement, dated as of September 27, 2017 by and among Moody National Operating Partnership II, LP, Moody National REIT II,
Inc. and KeyBank National Association (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
on September 28, 2017)                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.39 |  | Guaranty
dated as of September 27, 2017 and executed and delivered for KeyBank National Association by Moody National REIT II, Inc., MN
REIT II TRS, Inc., Moody National 1 Polito Lyndhurst Holding, LLC, Moody National International-Fort Worth Holding, LLC, MN Lyndhurst
Venture, LLC and MN Fort Worth Venture, LLC (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K
filed on September 28, 2017)
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.40 |  | Environmental
Indemnity given as of September 27, 2017 by Moody National REIT II, Inc., MN REIT II TRS, Inc., Moody National Operating Partnership
II, LP, Moody National 1 Polito Lyndhurst Holding, LLC, Moody National International-Fort Worth Holding, LLC, MN Lyndhurst Venture,
LLC and MN Fort Worth Venture, LLC (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
on September 28, 2017)
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.41 |  | Third
Amended and Restated Limited Partnership Agreement of Moody National Operating Partnership II, LP dated as of September 27, 2017
(incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on September 28, 2017)                                                                                                                                                                                   
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.42 |  | Letter
Agreement, dated as of December 27, 2017, by and among Moody National Operating Partnership II, LP, Moody National REIT II, Inc.
and KeyBank National Association (incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K filed
on January 2, 2018)                                                                                                                                                    
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.43 |  | Amendment
No. 1 to the Second Amended and Restated Advisory Agreement, by and among Moody National REIT II, Inc., Moody National Operating
Partnership II, LP and Moody National Advisor II, LLC dated as of January 16, 2018 (incorporated by reference to Exhibit 10.1
to the Current Report on Form 8-K filed on January 16, 2018)                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.44 |  | Amendment
No. 2 to the Second Amended and Restated Dealer Manager Agreement by and among Moody National REIT II, Inc., Moody National Operating
Partnership II, LP, Moody Securities, LLC and Moody National Advisor II, LLC dated as of March 19, 2018 (incorporated by reference
to Exhibit 10.1 to the Current Report on Form 8-K filed on March 20, 2018)                                                                      
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    
|10.45 |  | Letter
Agreement, dated as of March 28, 2018, by and among Moody National Operating Partnership II, LP, Moody National REIT II, Inc.,
MN REIT II TRS, Inc., Keybank National Association and certain other parties (incorporated by reference to Exhibit 10.46
to the Annual Report on Form 10-K filed on April 2, 2018)                                                                                                           
|10.46 |  | Second
Master Amendment to Loan Documents, dated as of October 24, 2018, by and among Moody National Operating Partnership II, LP, Moody
National REIT II, Inc. and KeyBank National Association (incorporated by reference to Exhibit 10.1 to the Current Report
on Form 8-K filed on October 30, 2018)                                                                                                                           
|10.47 |  | Letter
Agreement, dated as of October 24, 2018, by and among Moody National Operating Partnership II, LP, Moody National REIT II, Inc.
and KeyBank National Association (incorporated by reference to Exhibit 10.2 to the Current Report on Form 8-K filed
on October 30, 2018)                                                                                                                                                    
|10.48 |  | Promissory
Note, dated as of October 24, 2018, by Moody National Operating Partnership II, LP and Moody National REIT II, Inc. as makers,
in favor of Green Bank, N.A. as payee (incorporated by reference to Exhibit 10.3 to the Current Report on Form 8-K filed
on October 30, 2018)                                                                                                                                            
|10.49 |  | Loan
Agreement, dated as of October 24, 2018, by and among Moody National Operating Partnership II, LP, Moody National REIT II, Inc.
and Green Bank, N.A. (incorporated by reference to Exhibit 10.4 to the Current Report on Form 8-K filed on October 30,
2018)                                                                                                                                                                  
|10.50 |  | Security
Agreement, dated as of October 24, 2018, by and among Moody National Operating Partnership II, LP, Moody National REIT II, Inc.
and Green Bank, N.A. (incorporated by reference to Exhibit 10.5 to the Current Report on Form 8-K filed on October 30,
2018)                                                                                                                                                              
|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                    





5







|21.1    |  | Subsidiaries of the Company (incorporated by reference to Exhibit 21.1 to Post-Effective Amendment No. 8 to the Registration Statement on Form S-11 (Registration No. 333-198305), filed on October 31, 2017)
|------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|        |  |                                                                                                                                                                                                              
|31.1*   |  | Certification of Chief Executive Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                           
|        |  |                                                                                                                                                                                                              
|31.2*   |  | Certification of Chief Financial Officer pursuant to Section 302 of the Sarbanes-Oxley Act of 2002                                                                                                           
|        |  |                                                                                                                                                                                                              
|32.1*   |  | Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                           
|        |  |                                                                                                                                                                                                              
|32.2*   |  | Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002                                                                                                           
|        |  |                                                                                                                                                                                                              
|101.INS |  | XBRL
Instance Document                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                              
|101.SCH |  | XBRL
Taxonomy Extension Schema Document                                                                                                                                                                      
|        |  |                                                                                                                                                                                                              
|101.CAL |  | XBRL
Taxonomy Extension Calculation Linkbase Document                                                                                                                                                        
|        |  |                                                                                                                                                                                                              
|101.DEF |  | XBRL
Taxonomy Extension Definition Linkbase Document                                                                                                                                                         
|        |  |                                                                                                                                                                                                              
|101.LAB |  | XBRL
Taxonomy Extension Label Linkbase Document                                                                                                                                                              
|        |  |                                                                                                                                                                                                              
|101.PRE |  | XBRL
Taxonomy Extension Presentation Linkbase Document                                                                                                                                                       



| | 
| | 



*
Filed herewith.



6





SIGNATURES



Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.



|                     | MOODY
NATIONAL REIT II, INC.
|-------------------- | ----------------------------
|                     |                             
|Date:
August 9, 2019 | By:                         
|                     |                             
|                     |                             











****Moody National REIT II, Inc.Index to Consolidated Financial Statements and Schedule****



|                                                                                     | ******** | ****PageNumber****
|------------------------------------------------------------------------------------ | -------- | ------------------
|Report of Independent Registered Public Accounting Firm                              |          | F-2               
|Consolidated Balance Sheets as of December 31, 2018 and 2017                         |          | F-3               
|Consolidated Statements of Operations for the years ended December 31, 2018 and 2017 |          | F-4               
|Consolidated Statements of Equity for the years ended December 31, 2018 and 2017     |          | F-5               
|Consolidated Statements of Cash Flows for the years ended December 31, 2018 and 2017 |          | F-6               
|Notes to Consolidated Financial Statements                                           |          | F-7               
|Schedule III - Real Estate Assets and Accumulated Depreciation                       |          | F-29              



F-1





****Report of Independent Registered Public Accounting Firm****



To the Stockholders and Board of Directors ofMoody National REIT II, Inc.



Opinion on the Consolidated Financial Statements



We have audited the accompanying consolidated balance sheets of Moody National REIT II, Inc. and subsidiaries (the “Company”) as of December 31, 2018 and 2017, and the related consolidated statements of operations, equity, and cash flows for the years then ended, and the related notes and financial statement schedule III (collectively, the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.



Basis for Opinion



These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.



We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.



Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.



/s/ Frazier & Deeter, LLC



Atlanta, GeorgiaMarch 29, 2019



We have
served as the Company’s auditors since 2014.



F-2





MOODY
NATIONAL REIT II, INC.CONSOLIDATED
BALANCE SHEETS

****(in thousands, except per share amounts)****



|                                                                                                                                                                              |  | ****December 31,**** |        
|----------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | -------
|                                                                                                                                                                              |  | ****2018****         |        
|****ASSETS****                                                                                                                                                                |  |                      |        
|Investments in hotel properties, net                                                                                                                                          |  | $                    | 393,140
|Cash and cash equivalents                                                                                                                                                     |  |                      | 8,990  
|Restricted cash                                                                                                                                                               |  |                      | 10,204 
|Accounts receivable, net of allowance for doubtful accounts of $33 at December 31, 2018 and 2017                                                                              |  |                      | 711    
|Mortgage note receivable from related party                                                                                                                                   |  |                      | —      
|Notes receivable from related parties                                                                                                                                         |  |                      | 6,750  
|Prepaid expenses and other assets                                                                                                                                             |  |                      | 3,014  
|Deferred franchise costs, net of accumulated amortization of $132 and $50 at December 31, 2018 and 2017, respectively                                                         |  |                      | 934    
|Due from related parties                                                                                                                                                      |  |                      | 1,159  
|****Total Assets****                                                                                                                                                          |  | $                    | 424,902
|                                                                                                                                                                              |  |                      |        
|****LIABILITIES AND EQUITY****                                                                                                                                                |  |                      |        
|****Liabilities:****                                                                                                                                                          |  |                      |        
|Notes payable, net of unamortized debt issuance costs of $3,463 and $4,838 as of December 31, 2018 and 2017, respectively                                                     |  | $                    | 227,174
|Accounts payable and accrued expenses                                                                                                                                         |  |                      | 8,089  
|Due to related parties                                                                                                                                                        |  |                      | —      
|Dividends payable                                                                                                                                                             |  |                      | 1,744  
|Operating partnership distributions payable                                                                                                                                   |  |                      | 47     
|****Total Liabilities****                                                                                                                                                     |  |                      | 237,054
|                                                                                                                                                                              |  |                      |        
|****Special Limited Partnership Interests****                                                                                                                                 |  |                      | 1      
|                                                                                                                                                                              |  |                      |        
|****Commitments and Contingencies****                                                                                                                                         |  |                      |        
|                                                                                                                                                                              |  |                      |        
|****Equity:****                                                                                                                                                               |  |                      |        
|                                                                                                                                                                              |  |                      |        
|Stockholders’ equity:                                                                                                                                                         |  |                      |        
|Preferred stock, $0.01 par value per share; 100,000 shares authorized; no shares issued and outstanding                                                                       |  |                      | —      
|Common stock, $0.01 par value per share; 1,000,000 shares authorized, 10,636 and 8,693 shares issued and outstanding at December 31, 2018 and December 31, 2017, respectively |  |                      | 106    
|Additional paid-in capital                                                                                                                                                    |  |                      | 237,216
|Accumulated deficit                                                                                                                                                           |  |                      | (54,674
|Total stockholders’ equity                                                                                                                                                    |  |                      | 182,648
|Noncontrolling interests in Operating Partnership                                                                                                                             |  |                      | 5,199  
|****Total Equity****                                                                                                                                                          |  |                      | 187,847
|                                                                                                                                                                              |  |                      |        
|****TOTAL LIABILITIES AND EQUITY****                                                                                                                                          |  | $                    | 424,902



See accompanying notes to consolidated financial statements.



F-3





MOODY
NATIONAL REIT II, INC.CONSOLIDATED
STATEMENTS OF OPERATIONS

****(in thousands, except per share amounts)****



|                                                                           |  |                                  |        |   |              |  
|-------------------------------------------------------------------------- |  | -------------------------------- | ------ | - | ------------ | -
|                                                                           |  | ****Years ended December 31,**** |       
|                                                                           |  | ****2018****                     |        |   | ****2017**** |  
|                                                                           |  |                                  |        |   |              |  
|****Revenue****                                                            |  |                                  |        |   |              |  
|Room revenue                                                               |  | $                                | 74,782 |   |              | $
|Other hotel revenue                                                        |  |                                  | 4,884  |   |              |  
|Total hotel revenue                                                        |  |                                  | 79,666 |   |              |  
|Interest income from notes receivable                                      |  |                                  | 1,175  |   |              |  
|Total revenue                                                              |  |                                  | 80,841 |   |              |  
|                                                                           |  |                                  |        |   |              |  
|****Expenses****                                                           |  |                                  |        |   |              |  
|Hotel operating expenses                                                   |  |                                  | 50,182 |   |              |  
|Property taxes, insurance and other                                        |  |                                  | 5,542  |   |              |  
|Depreciation and amortization                                              |  |                                  | 12,166 |   |              |  
|Acquisition expenses                                                       |  |                                  | —      |   |              |  
|Corporate general and administrative                                       |  |                                  | 6,503  |   |              |  
|Total expenses                                                             |  |                                  | 74,393 |   |              |  
|                                                                           |  |                                  |        |   |              |  
|****Operating income (loss)****                                            |  |                                  | 6,448  |   |              |  
|                                                                           |  |                                  |        |   |              |  
|Interest expense and amortization of debt issuance costs                   |  |                                  | 15,960 |   |              |  
|                                                                           |  |                                  |        |   |              |  
|****Loss before income taxes****                                           |  |                                  | (9,512 | ) |              |  
|                                                                           |  |                                  |        |   |              |  
|Income tax expense                                                         |  |                                  | 158    |   |              |  
|                                                                           |  |                                  |        |   |              |  
|****Net loss****                                                           |  |                                  | (9,670 | ) |              |  
|                                                                           |  |                                  |        |   |              |  
|Net loss attributable to noncontrolling interests in Operating Partnership |  |                                  | 309    |   |              |  
|                                                                           |  |                                  |        |   |              |  
|****Net loss attributable to common stockholders****                       |  | $                                | (9,361 | ) |              | $
|********                                                                   |  |                                  |        |   |              |  
|****Per-share information – basic and diluted:****                         |  |                                  |        |   |              |  
|****Net loss attributable to common stockholders****                       |  | $                                | (0.98  | ) |              | $
|****Dividends declared****                                                 |  | $                                | 1.75   |   |              | $
|****Weighted average common shares outstanding****                         |  |                                  | 9,578  |   |              |  



See accompanying notes to consolidated financial statements.



F-4





MOODY
NATIONAL REIT II, INC.CONSOLIDATED
STATEMENTS OF EQUITYYears ended December
31, 2018 and 2017

****(in thousands)****



|                                                                |  | ****Preferred Stock****  |   |  | ****Common Stock**** |   |   | ********                 |  |  | ********         |   |  | ****Noncontrolling Interests in Operating Partnership**** |     |   | ********                    |  
|--------------------------------------------------------------- |  | ------------------------ | - |  | -------------------- | - | - | ------------------------ |  |  | ---------------- | - |  | --------------------------------------------------------- | --- | - | --------------------------- | -
|                                                                |  | ****Number of Shares**** |   |  | ****ParValue****     |   |   | ****Number of Shares**** |  |  | ****ParValue**** |   |  | ****AdditionalPaid-InCapital****                          |     |   | ****Accumulated Deficit**** |  
|Balance at December 31, 2016                                    |  |                          | — |  |                      | $ | — |                          |  |  | 3,173            |   |  | $                                                         | 32  |   |                             | $
|Issuance of common stock, netof offering costs                  |  |                          | — |  |                      |   | — |                          |  |  | 1,818            |   |  |                                                           | 18  |   |                             |  
|Redemption of common stock                                      |  |                          |   |  |                      |   |   |                          |  |  | (37              | ) |  |                                                           |     |   |                             |  
|Issuance of common stock in connection with Merger              |  |                          | — |  |                      |   | — |                          |  |  | 3,625            |   |  |                                                           | 36  |   |                             |  
|Issuance of operating partnership units, net of offering costs  |  |                          | — |  |                      |   | — |                          |  |  | —                |   |  |                                                           | —   |   |                             |  
|Issuance of common stock pursuant to dividend reinvestment plan |  |                          | — |  |                      |   | — |                          |  |  | 99               |   |  |                                                           | 1   |   |                             |  
|Stock-based compensation                                        |  |                          | — |  |                      |   | — |                          |  |  | 15               |   |  |                                                           |     |   |                             |  
|Net loss                                                        |  |                          | — |  |                      |   | — |                          |  |  | —                |   |  |                                                           | —   |   |                             |  
|Dividends and distributions declared                            |  |                          | — |  |                      |   | — |                          |  |  | —                |   |  |                                                           | —   |   |                             |  
|Balance at December 31, 2017                                    |  |                          | — |  |                      |   | — |                          |  |  | 8,693            |   |  |                                                           | 87  |   |                             |  
|                                                                |  |                          |   |  |                      |   |   |                          |  |  |                  |   |  |                                                           |     |   |                             |  
|Issuance of common stock, netof offering costs                  |  |                          | — |  |                      |   | — |                          |  |  | 1,884            |   |  |                                                           | 18  |   |                             |  
|Redemption of common stock                                      |  |                          |   |  |                      |   |   |                          |  |  | (110             | ) |  |                                                           | (1  | ) |                             |  
|Issuance of common stock pursuant to dividend reinvestment plan |  |                          | — |  |                      |   | — |                          |  |  | 159              |   |  |                                                           | 2   |   |                             |  
|Stock-based compensation                                        |  |                          | — |  |                      |   | — |                          |  |  | 10               |   |  |                                                           | —   |   |                             |  
|Net loss                                                        |  |                          | — |  |                      |   | — |                          |  |  | —                |   |  |                                                           | —   |   |                             |  
|Dividends and distributions declared                            |  |                          | — |  |                      |   | — |                          |  |  | —                |   |  |                                                           | —   |   |                             |  
|Balance at December 31, 2018                                    |  |                          | — |  |                      | $ | — |                          |  |  | 10,636           |   |  | $                                                         | 106 |   |                             | $



See accompanying notes to consolidated financial statements.



F-5





MOODY
NATIONAL REIT II, INC.CONSOLIDATED
STATEMENTS OF CASH FLOWS

****(in thousands)****



|                                                                                          |  |                                 |         |   |              |  
|----------------------------------------------------------------------------------------- |  | ------------------------------- | ------- | - | ------------ | -
|                                                                                          |  | ****Year ended December 31,**** |        
|                                                                                          |  | ****2018****                    |         |   | ****2017**** |  
|****Cash flows from operating activities****                                              |  |                                 |         |   |              |  
|Net loss                                                                                  |  | $                               | (9,670  | ) |              | $
|Adjustments to reconcile net loss to net cash provided by (used in) operating activities: |  |                                 |         |   |              |  
|Depreciation and amortization                                                             |  |                                 | 12,166  |   |              |  
|Amortization of debt issuance costs                                                       |  |                                 | 1,973   |   |              |  
|Deferred income tax expense (benefit)                                                     |  |                                 | —       |   |              |  
|Stock-based compensation                                                                  |  |                                 | 361     |   |              |  
|Changes in operating assets and liabilities:                                              |  |                                 |         |   |              |  
|Accounts receivable                                                                       |  |                                 | 672     |   |              |  
|Prepaid expenses and other assets                                                         |  |                                 | 13      |   |              |  
|Accounts payable and accrued expenses                                                     |  |                                 | (336    | ) |              |  
|Due to related parties                                                                    |  |                                 | (919    | ) |              |  
|Net cash provided by (used in) operating activities                                       |  |                                 | 4,260   |   |              |  
|                                                                                          |  |                                 |         |   |              |  
|****Cash flows from investing activities****                                              |  |                                 |         |   |              |  
|Repayment of mortgage note receivable from related party                                  |  |                                 | 11,200  |   |              |  
|Due to related parties                                                                    |  |                                 | —       |   |              |  
|Repayment of notes receivable from related parties                                        |  |                                 | 4,500   |   |              |  
|Origination of notes receivable from Moody I                                              |  |                                 | —       |   |              |  
|Improvements and additions to hotel properties                                            |  |                                 | (8,588  | ) |              |  
|Acquisition of Moody I, net of cash acquired                                              |  |                                 | —       |   |              |  
|Net cash provided by (used in) investing activities                                       |  |                                 | 7,112   |   |              |  
|                                                                                          |  |                                 |         |   |              |  
|****Cash flows from financing activities****                                              |  |                                 |         |   |              |  
|Proceeds from issuance of common stock                                                    |  |                                 | 44,027  |   |              |  
|Redemptions of common stock                                                               |  |                                 | (2,624  | ) |              |  
|Offering costs paid                                                                       |  |                                 | (2,692  | ) |              |  
|Dividends paid                                                                            |  |                                 | (12,935 | ) |              |  
|Operating partnership distributions paid                                                  |  |                                 | (554    | ) |              |  
|Proceeds from notes payable                                                               |  |                                 | 16,000  |   |              |  
|Repayment of notes payable                                                                |  |                                 | (54,537 | ) |              |  
|Payment of debt issuance costs                                                            |  |                                 | (598    | ) |              |  
|Net cash provided by (used in) financing activities                                       |  |                                 | (13,913 | ) |              |  
|                                                                                          |  |                                 |         |   |              |  
|Net
change in cash, cash equivalents and restricted cash                                  |  |                                 | (2,541  | ) |              |  
|Cash,
cash equivalents and restricted cash at beginning of year                           |  |                                 | 21,735  |   |              |  
|Cash,
cash equivalents and restricted cash at end of year                                 |  | $                               | 19,194  |   |              | $
|                                                                                          |  |                                 |         |   |              |  
|****Supplemental Disclosure of Cash Flow Activity****                                     |  |                                 |         |   |              |  
|Interest paid                                                                             |  | $                               | 14,166  |   |              | $
|Income tax paid                                                                           |  | $                               | 290     |   |              | $
|****Supplemental Disclosure of Non-Cash Financing Activity****                            |  |                                 |         |   |              |  
|Increase (decrease) in accrued offering costs due to related party                        |  | $                               | (580    | ) |              | $
|Issuance of common stock from dividend reinvestment plan                                  |  | $                               | 3,718   |   |              | $
|Issuance of common stock in connection with Merger                                        |  | $                               | —       |   |              | $
|Issuance of operating partnership units in connection with Merger                         |  | $                               | —       |   |              | $
|Assumption of notes payable in connection with Merger                                     |  | $                               | —       |   |              | $
|Repayment of notes receivable from Moody I in connection with Merger                      |  | $                               | —       |   |              | $
|Dividends payable                                                                         |  | $                               | 1,744   |   |              | $
|Operating partnership distribution payable                                                |  | $                               | 47      |   |              | $



See accompanying notes to consolidated financial statements.



F-6





****MOODY NATIONAL REIT II, INC.****

****NOTES TO CONSOLIDATED FINANCIAL STATEMENTS****

****December 31, 2018 and 2017****



|1. | Organization
|-- | ------------



As discussed in Note 6, “Equity,” Moody National REIT II, Inc. (the “Company”) was initially capitalized by Moody National REIT Sponsor, LLC (the “Sponsor”). The Company’s fiscal year end is December 31.



As of December 31, 2018, the Company owned (1) interests in fourteen hotel properties located in six states comprising a total of 1,941 rooms, and (2) a loan with a current principal amount of $6,750,000 originated to an affiliate of Sponsor used to acquire a commercial property located in Katy, Texas. For more information on the Company’s real estate investments, see Note 3, “Investment in Hotel Properties” and Note 4, “Notes Receivable from Related Parties.”



On January 20, 2015, the Securities and Exchange Commission (the “SEC”) declared the Company’s registration statement on Form S-11 effective, and the Company commenced its initial public offering, of up to $1,100,000,000 in shares of common stock consisting of up to $1,000,000,000 in shares of the Company’s common stock offered to the public, and up to $100,000,000 in shares offered to the Company’s stockholders pursuant to its distribution reinvestment plan (the “DRP”).



On June 26, 2017, the SEC declared effective the Company’s post-effective amendment to its registration statement for the Offering, which reallocated the Company’s shares of common stock as Class A common stock, $0.01 par value per share (“Class A Shares”), Class D common stock, $0.01 par value per share (“Class D Shares”), Class I common stock, $0.01 par value per share (“Class I Shares”), and Class T common stock, $0.01 par value per share (“Class T Shares” and, together with the Class A Shares, the Class D Shares and the Class I Shares, the “Shares”) to be sold on a “best efforts” basis. On January 16, 2018, the Advisor assumed responsibility for the payment of all selling commissions, dealer manager fees and stockholder servicing fees paid in connection with the Offering; provided, however that the Advisor intends to recoup the selling commissions, dealer manager fees and stockholder servicing fees that it funds through an increased acquisition fee, or “Contingent Advisor Payment,” as described in Note 7, “Related Party Arrangements.”



The Company is currently offering the Shares (i) to the public in the Company’s primary offering at a purchase price of $23.19 per share, which is equal to the estimated net asset value (“NAV”) per share for each class as of December 31, 2017, and (ii) to the Company’s stockholders pursuant to the DRP at a purchase price of $23.19 per share, which is equal to the estimated NAV per share for each class as of December 31, 2017. On March 14, 2019, the Company’s board of directors determined an estimated NAV per share of all classes of the Company’s common stock of $23.32 per share as of December 31, 2018.



On January 18, 2018, the Company filed a registration statement on Form S-11 (Registration No. 333-222610) registering $990,000,000 in any combination of the Shares to be sold on a “best efforts” basis in the Company’s follow-on public offering. The SEC declared the registration statement effective on July 19, 2018. The Company will continue to offer Shares in the follow-on offering on a continuous basis until July 19, 2021, subject to extension for an additional year by our board of directors.



As of December 31, 2018, the Company had received and accepted investors’ subscriptions for and issued 7,011,982 shares in the Company’s initial public offering and follow-on offering, excluding shares issued in connection with the Company’s merger with Moody National REIT I, Inc. and including 292,204 shares pursuant to the DRP, resulting in gross offering proceeds of $166,178,977. As of December 31, 2018, the Company had received and accepted investors’ subscriptions for and issued 6,125,993 shares in the initial public offering, excluding shares issued in connection with the Company’s merger with Moody National REIT I, Inc. and including 214,764 shares pursuant to the DRP in the initial public offering, resulting in gross offering proceeds of $147,415,625 for the initial public offering. As of December 31, 2018, the Company had received and accepted investors’ subscriptions for and issued 885,989 shares in the follow-on offering, including 77,440 shares pursuant to the DRP in the follow-on offering, resulting in gross offering proceeds of $18,763,352 for the follow-on offering.



The Company’s advisor is Moody National Advisor II, LLC (the “Advisor”), a Delaware limited liability company and an affiliate of the Sponsor. Pursuant to an advisory agreement among the Company, the OP (defined below) and the Advisor (the “Advisory Agreement”), and subject to certain restrictions and limitations therein, the Advisor is responsible for managing the Company’s affairs on a day-to-day basis and for identifying and making acquisitions and investments on behalf of the Company.



Substantially all of the Company’s business is conducted through Moody National Operating Partnership II, LP, a Delaware limited partnership (the “OP”). The Company is the sole general partner of the OP. The initial limited partners of the OP were Moody OP Holdings II, LLC, a Delaware limited liability company and a wholly owned subsidiary of the Company (“Moody Holdings II”), and Moody National LPOP II, LLC (“Moody LPOP II”), an affiliate of the Advisor. Moody Holdings II initially invested $1,000 in the OP in exchange for limited partnership interests, and Moody LPOP II has invested $1,000 in the OP in exchange for a separate class of limited partnership interests (the “Special Limited Partnership Interests”). As the Company accepts subscriptions for shares of common stock, it transfers substantially all of the net proceeds from such sales to the OP as a capital contribution. The limited partnership agreement of the OP provides that the OP will be operated in a manner that will enable the Company to (1) satisfy the requirements for being classified as a REIT for tax purposes, (2) avoid any federal income or excise tax liability and (3) ensure that the OP will not be classified as a “publicly traded partnership” for purposes of Section 7704 of the Internal Revenue Code of 1986, as amended (the “Internal Revenue Code”), which classification could result in the OP being taxed as a corporation, rather than as a partnership. In addition to the administrative and operating costs and expenses incurred by the OP in acquiring and operating real properties, the OP will pay all of the Company’s administrative costs and expenses, and such expenses will be treated as expenses of the OP.



F-7





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



******Merger with Moody National REIT I, Inc.******



On September 27, 2017, the merger of Moody National REIT I, Inc. (“Moody I”) with and into the Company (the “Merger”) and the merger of Moody National Operating Partnership I, L.P., the operating partnership of Moody I (“Moody I OP”), with and into the OP (the “Partnership Merger,” and together with the Merger, the “Mergers”), were completed. Upon the consummation of the Merger, former Moody I stockholders received a total of approximately 3.61 million Class A shares of the Company’s common stock as stock consideration, which was equal to approximately 42% of the Company’s diluted common equity as of the closing date, and a total of approximately $45.4 million in cash consideration. In addition, upon consummation of the Partnership Merger, each issued and outstanding unit of limited partnership interest in Moody I OP was automatically cancelled and retired and converted into 0.41 units of Class A limited partnership interest in the OP.



In connection with the Mergers, the Company paid the Advisor an acquisition fee of $670,000, which equaled 1.5% of the cash consideration paid to Moody I stockholders, and a financing coordination fee of $1,720,000, which amount was based on the loans assumed from Moody I in connection with the Mergers, including debt held by the Company with respect to two properties that were previously owned by Moody I. Moody I paid its advisor $5,580,685 (the “Moody I Advisor Payment”). The Moody I Advisor Payment was a negotiated amount that represents a reduction in the disposition fee to which Moody I’s advisor could have been entitled and a waiver of any other fees that Moody I’s advisor would have been due under the Moody I advisory agreement in connection with the Mergers. During the first year following the consummation of the Mergers, if the Company sells a property that was previously owned by Moody I, then any disposition fee to which the Advisor would be entitled under the Advisory Agreement will be reduced by an amount equal to the portion of the Moody I Advisor Payment attributable to such property. In addition, Moody I OP paid $613,751 to OP Holdings I, LLC, which amount was the promote payment to which OP Holdings I, LLC was entitled under the terms of the limited partnership agreement of Moody I OP. The Company also paid Moody Securities a stockholder servicing fee of up to $2.125 per share of the Company’s Class A Shares issued as stock consideration in the Merger, for an aggregate amount of approximately $7.0 million in stockholder servicing fees, all of which was reallowed to broker-dealers that provide ongoing financial advisory services to former stockholders of Moody I following the Mergers and that entered into participating broker-dealer agreements with Moody Securities****.****



|2. | Summary
of Significant Accounting Policies
|-- | ------------------------------------------



******Basis of Presentation and Principles of Consolidation******



The Company’s consolidated financial statements include its accounts and the accounts of its subsidiaries over which it has control. All intercompany balances and transactions are eliminated in consolidation.



The Company includes the accounts of certain entities in its consolidated financial statements when the Company is the primary beneficiary for entities deemed to be variable interest entities (“VIEs”) through which the Company has a controlling interest. Interests in entities acquired are evaluated based on GAAP, which requires the consolidation of VIEs in which the Company is deemed to have the controlling financial interest. The Company has the controlling financial interest if the Company has the power to direct the activities of the VIE that most significantly impact its economic performance and the obligation to absorb losses or receive benefits from the VIE that could be significant to the Company. If the interest in the entity is determined not to be a VIE, then the entity is evaluated for consolidation based on legal form, economic substance, and the extent to which the Company has control and/or substantive participating rights under the respective ownership agreement. There are judgments and estimates involved in determining if an entity in which the Company has an investment is a VIE. The entity is evaluated to determine if it is a VIE by, among other things, determining if the equity investors as a group have a controlling financial interest in the entity and if the entity has sufficient equity at risk to finance its activities without additional subordinated financial support. The Company did not have any VIE interests as of December 31, 2018 or 2017.



F-8







**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



******Use of Estimates******



The preparation of consolidated financial statements in conformity with U.S. Generally Accepted Accounting Principles (“GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the consolidated financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.



******Organization and Offering Costs******



Organization and offering costs of the Company are paid directly by the Company or incurred by the Advisor on behalf of the Company. Pursuant to the Advisory Agreement between the Company and the Advisor, the Company is obligated to reimburse the Advisor or its affiliates, as applicable, for organization and offering costs incurred by the Advisor associated with each of the Company’s public offerings, provided that within 60 days of the last day of the month in which a public offering ends, the Advisor is obligated to reimburse the Company to the extent aggregate organization and offering costs incurred by the Company in connection with the completed public offering exceed 15.0% of the gross offering proceeds from the sale of the Company’s shares of common stock in the completed public offering. Such organization and offering costs include selling commissions and dealer manager fees paid to a dealer manager, legal, accounting, printing and other offering expenses, including marketing, salaries and direct expenses of the Advisor’s employees and employees of the Advisor’s affiliates and others. Any reimbursement of the Advisor or its affiliates for organization and offering costs will not exceed actual expenses incurred by the Advisor. The Company’s organization and offering costs incurred in connection with the Company’s initial public offering did not exceed 15% of the gross offering proceeds from the sale of our shares of common stock in such offering.



All offering costs, including selling commissions and dealer manager fees, are recorded as an offset to additional paid-in-capital, and all organization costs are recorded as an expense when the Company has an obligation to reimburse the Advisor.



As of December 31, 2018, total offering costs for the initial public offering and the follow-on offering were $19,344,749, comprised of $12,333,647 of offering costs incurred directly by the Company and $7,011,102 in offering costs incurred by and reimbursable to the Advisor. As of December 31, 2018, total offering costs for the initial public offering were $18,365,295, comprised of $12,333,647 of offering costs incurred directly by the Company and $6,031,648 in offering costs incurred by and reimbursable to the Advisor. As of December 31, 2018, total offering costs for the follow-on offering were $979,454, comprised of $0 of offering costs incurred directly by the Company and $979,454 in offering costs incurred by and reimbursable to the Advisor. As of December 31, 2018, the Company had $52,275 due to the Advisor for reimbursable offering costs.



******Income Taxes******



The Company elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with the taxable year ended December 31, 2016. The Company did not meet all of the qualifications to be a REIT under the Internal Revenue Code for the years ended December 31, 2015 and 2014, including not having 100 shareholders for a sufficient number of days in 2015. Prior to qualifying to be taxed as a REIT, the Company was subject to normal federal and state corporation income taxes.



Provided that the Company continues to qualify as a REIT, it generally will not be subject to federal corporate income tax to the extent it distributes its REIT taxable income to its stockholders, so long as it distributes at least 90% of its REIT taxable income (which is computed without regard to the dividends paid deduction or net capital gain and which does not necessarily equal net income as calculated in accordance with GAAP) and satisfies the other organizational and operational requirements for qualification as a REIT. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income. The Company leases the hotels it acquires to a wholly-owned taxable REIT subsidiary (“TRS”) that is subject to federal, state and local income taxes.



The Company accounts for income taxes of its TRS using the asset and liability method under which deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities from a change in tax rates is recognized in earnings in the period prior to when the new rates become effective. The Company records a valuation allowance for net deferred tax assets that are not expected to be realized.



The Company has reviewed tax positions under GAAP guidance that clarify the relevant criteria and approach for the recognition and measurement of uncertain tax positions. The guidance prescribes a recognition threshold and measurement attribute for the financial statement recognition of a tax position taken, or expected to be taken, in a tax return. A tax position may only be recognized in the consolidated financial statements if it is more likely than not that the tax position will be sustained upon examination. The Company had no material uncertain tax positions as of December 31, 2018.



F-9





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



The preparation of the Company’s various tax returns requires the use of estimates for federal and state income tax purposes. These estimates may be subjected to review by the respective taxing authorities. A revision to an estimate may result in an assessment of additional taxes, penalties and interest. At this time, a range in which the Company’s estimates may change is not expected to be material. The Company will account for interest and penalties relating to uncertain tax positions in the current period results of operations, if necessary. The Company has tax years 2014 through 2017 remaining subject to examination by various federal and state tax jurisdictions. For more information, see Note 11, “Income Taxes.”



******Fair Value Measurement******



Fair value measures are classified into a three-tiered fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows:



| | Level 1: | Observable inputs such as quoted prices in active markets.
| | -------- | ----------------------------------------------------------



| | Level 2: | Directly or indirectly observable inputs, other than quoted prices in active markets.
| | -------- | -------------------------------------------------------------------------------------



| | Level 3: | Unobservable inputs in which there is little or no market data, which require a reporting entity to develop its own assumptions.
| | -------- | --------------------------------------------------------------------------------------------------------------------------------



Assets and liabilities measured at fair value are based on one or more of the following valuation techniques:



| | Market approach: | Prices and other relevant information generated by market transactions involving identical or comparable assets or liabilities.
| | ---------------- | -------------------------------------------------------------------------------------------------------------------------------



| | Cost approach: | Amount required to replace the service capacity of an asset (replacement cost).
| | -------------- | -------------------------------------------------------------------------------



| | Income approach: | Techniques used to convert future income amounts to a single amount based on market expectations (including present-value, option-pricing, and excess-earnings models).
| | ---------------- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



The Company’s estimates of fair value were determined using available market information and appropriate valuation methods. Considerable judgment is necessary to interpret market data and develop estimated fair value. The use of different market assumptions or estimation methods may have a material effect on the estimated fair value amounts. The Company classifies assets and liabilities in the fair value hierarchy based on the lowest level of input that is significant to the fair value measurement.



The Company elected not to use the fair value option in recording its financial instruments, which include cash and cash equivalents, restricted cash, accounts receivable, notes receivable, notes payable, and accounts payable and accrued expenses. With the exception of the Company’s fixed-rate notes receivable from related parties and notes payable, the carrying amounts of these financial instruments approximate their fair values due to their short-term nature. For the fair value of the Company’s note receivable from related parties and notes payable, see Note 4, “Notes Receivable from Related Parties” and Note 5, “Debt.” Additionally, for the fair value information related to purchase accounting for the Mergers, see Note 3, “Investment in Hotel Properties.”



******Concentration of Risk******



As of December 31, 2018, the Company had cash and cash equivalents and restricted cash deposited in certain financial institutions in excess of federally insured levels. The Company diversifies its cash and cash equivalents with several banking institutions in an attempt to minimize exposure to any one of these institutions. The Company regularly monitors the financial stability of these financial institutions and believes that it is not exposed to any significant credit risk in cash and cash equivalents or restricted cash.



F-10





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



The Company is also exposed to credit risk with respect to its notes receivable from related parties. The failure of any of the borrowers on the notes receivable from related parties to make payments of interest and principal when due, or any other event of default under the notes receivable from related parties, would have an adverse impact on the Company’s results of operations.



The Company is exposed to geographic risk in that eight of its fourteen hotel properties are located in one state, Texas.



******Valuation and Allocation of Hotel Properties — Acquisition******



Upon acquisition, the purchase price of hotel properties is allocated to the tangible assets acquired, consisting of land, buildings and furniture, fixtures and equipment, any assumed debt, identified intangible assets and asset retirement obligations, if any, based on their fair values. Acquisition costs are charged to expense as incurred. Initial valuations are subject to change during the measurement period, but the measurement period ends as soon as the information is available. The measurement period shall not exceed one year from the acquisition date.



Land values are derived from appraisals and building values are calculated as replacement cost less depreciation or estimates of the relative fair value of these assets using discounted cash flow analyses or similar methods. The value of furniture, fixtures and equipment is based on their fair value using replacement costs less depreciation. Any difference between the fair value of the hotel property acquired and the purchase price of the hotel property is recorded as goodwill or gain on acquisition of hotel property.



The Company determines the fair value of any assumed debt by calculating the net present value of the scheduled mortgage payments using interest rates for debt with similar terms and remaining maturities that the Company believes it could obtain at the date of acquisition. Any difference between the fair value and stated value of the assumed debt is recorded as a discount or premium and amortized over the remaining life of the loan as interest expense.



In allocating the purchase price of each of the Company’s properties, the Company makes assumptions and uses various estimates, including, but not limited to, the estimated useful lives of the assets, the cost of replacing certain assets and discount rates used to determine present values. The Company uses Level 3 inputs to value acquired properties. Many of these estimates are obtained from independent third party appraisals. However, the Company is responsible for the source and use of these estimates. These estimates require judgment and are subject to being imprecise; accordingly, if different estimates and assumptions were derived, the valuation of the various categories of the Company’s hotel properties or related intangibles could in turn result in a difference in the depreciation or amortization expense recorded in the Company’s consolidated financial statements. These variances could be material to the Company’s results of operations and financial condition.



******Valuation and Allocation of Hotel Properties — Ownership******



Investment in hotel properties is recorded at cost less accumulated depreciation. Major improvements that extend the life of an asset are capitalized and depreciated over a period equal to the shorter of the life of the improvement or the remaining useful life of the asset. The costs of ordinary repairs and maintenance are charged to expense when incurred.



Depreciation expense is computed using the straight-line method based upon the following estimated useful lives:



|                                  |  | ****Estimated********Useful Lives********(years)**** |      
|--------------------------------- |  | ---------------------------------------------------- | -----
|Buildings and improvements        |  |                                                      | 39-40
|Exterior improvements             |  |                                                      | 10-20
|Furniture, fixtures and equipment |  |                                                      | 5-10 



******Impairments******



The Company monitors events and changes in circumstances indicating that the carrying amount of a hotel property may not be recoverable. When such events or changes in circumstances are present, the Company assesses potential impairment by comparing estimated future undiscounted cash flows expected to be generated over the life of the asset from operating activities and from its eventual disposition, to the carrying amount of the asset. In the event that the carrying amount exceeds the estimated future undiscounted cash flows, the Company recognizes an impairment loss to adjust the carrying amount of the asset to estimated fair value for assets held for use and fair value less costs to sell for assets held for sale. There were no such impairment losses for the three and year ended December 31, 2018 and 2017.



In evaluating a hotel property for impairment, the Company makes several estimates and assumptions, including, but not limited to, the projected date of disposition of the property, the estimated future cash flows of the property during the Company’s ownership and the projected sales price of the property. A change in these estimates and assumptions could result in a change in the estimated undiscounted cash flows or fair value of the Company’s hotel property which could then result in different conclusions regarding impairment and material changes to the Company’s consolidated financial statements.



F-11





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



******Revenue Recognition******



Hotel revenues, including room, food, beverage and other ancillary revenues, are recognized as the related services are delivered. Revenue is recorded net of any sales and other taxes collected from customers. Interest income is recognized when earned. Amounts received prior to guest arrival are recorded as advances from the customer and are recognized at the time of occupancy. Refer to “Recent Accounting Pronouncements” below for further discussion of revenue recognition.



******Cash and Cash Equivalents******



Cash and cash equivalents represent cash on hand or held in banks and short-term investments with an initial maturity of three months or less at the date of purchase.



******Restricted Cash******



Restricted cash includes reserves for property taxes, as well as reserves for property improvements, replacement of furniture, fixtures, and equipment and debt service, as required by certain management or mortgage and term debt agreements restrictions and provisions.



******Accounts Receivable******



The Company takes into consideration certain factors that require judgments to be made as to the collectability of receivables. Collectability factors taken into consideration are the amounts outstanding, payment history and financial strength of the customer, which, taken as a whole, determines the valuation. Ongoing credit evaluations are performed and an allowance for potential credit losses is provided against the portion of accounts receivable that is estimated to be uncollectible.



******Impairment of Notes Receivable from Related Parties******



The Company reviews the notes receivable from related parties for impairment in each reporting period pursuant to the applicable authoritative accounting guidance. A loan is impaired when, based on current information and events, it is probable that the Company will be unable to collect all amounts recorded as assets on the consolidated balance sheets. The Company applies normal loan review and underwriting procedures (as may be implemented or modified from time to time) in making that judgment. When a loan is impaired, the Company measures impairment based on the present value of expected cash flows discounted at the loan’s effective interest rate against the value of the asset recorded on the consolidated balance sheets. The Company may also measure impairment based on a loan’s observable market price or the fair value of collateral, if the loan is collateral dependent. If a loan is deemed to be impaired, the Company records a valuation allowance through a charge to earnings for any shortfall. The Company’s assessment of impairment is based on considerable judgment and estimates. The Company did not record a valuation allowance during years ended December 31, 2018 or 2017.



******Prepaid Expenses and Other Assets******



Prepaid expenses include prepaid property insurance and hotel operating expenses. Other assets also include the Company’s deferred income tax asset.



******Deferred Franchise Costs******



Deferred franchise costs are recorded at cost and amortized over the term of the respective franchise contract on a straight-line basis. Accumulated amortization of deferred franchise costs was $133,518 and $50,430 as of December 31, 2018 and 2017, respectively.



Expected future amortization of deferred franchise costs as of December 31, 2018 is as follows (in thousands):



|****Years Ending December 31,**** |  |   |     | 
|--------------------------------- |  | - | --- | 
|2019                              |  | $ | 83  | 
|2020                              |  |   | 83  | 
|2021                              |  |   | 83  | 
|2022                              |  |   | 83  | 
|2023                              |  |   | 80  | 
|Thereafter                        |  |   | 522 | 
|Total                             |  | $ | 934 | 



F-12





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



******Debt Issuance Costs******



Debt issuance costs are presented as a direct deduction from the carrying value of the notes payable on the consolidated balance sheets. Debt issuance costs are amortized as a component of interest expense over the term of the related debt using the straight-line method, which approximates the interest method. Accumulated amortization of debt issuance costs was $3,003,186 and $1,029,922 as of December 31, 2018 and 2017, respectively. Expected future amortization of debt issuance costs as of December 31, 2018 is as follows (in thousands):



|****Years Ending December 31,**** |  |   |       | 
|--------------------------------- |  | - | ----- | 
|2019                              |  | $ | 957   | 
|2020                              |  |   | 512   | 
|2021                              |  |   | 511   | 
|2022                              |  |   | 511   | 
|2023                              |  |   | 466   | 
|Thereafter                        |  |   | 506   | 
|Total                             |  | $ | 3,463 | 



******Earnings (Loss) per Share******



Earnings (loss) per share (“EPS”) is calculated based on the weighted average number of shares outstanding during each period. Basic and diluted EPS are the same for all periods presented. Non-vested shares of restricted common stock totaling 7,500 and 11,250 shares as of December 31, 2018 and 2017, respectively, held by the Company’s independent directors are included in the calculation of basic EPS because such shares have been issued and participate in dividends.



******Comprehensive Income******



For the periods presented, there were no differences between reported net loss attributable to common stockholders and comprehensive loss.



******Recent Accounting Pronouncements******



In May 2014, the Financial Accounting Standards Board (the “FASB”) issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers,” which requires an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. ASU No. 2014-09 will replace most existing revenue recognition guidance in GAAP when it becomes effective. The standard permits the use of either the full retrospective or modified retrospective adoption. In July 2015, the FASB voted to defer the effective date to January 1, 2018 with early adoption beginning January 1, 2017. The Company completed its evaluation of the effect that ASU No. 2014-09 will have on the Company’s consolidated financial statements and evaluated each of our revenue streams under the new standard. Because of the short-term day-to-day nature of the Company’s hotel revenues, the Company determined that the pattern of revenue recognition will not materially change. Under ASU No. 2014-09, there will be a recharacterization of certain revenue streams affecting both gross and net revenue reporting due to changes in principal versus agency guidance, which presentation is deemed immaterial for the Company and will not affect net income. Additionally, the Company does not sell hotel properties to customers as defined by FASB, but have historically disposed of hotel properties for cash sales with no contingencies and no future involvement in the hotel operations, and therefore, ASU No. 2014-09 will not impact the recognition of hotel sales. The Company finalized its expanded disclosure for the notes to the consolidated financial statements pursuant to the new requirements. The Company adopted this standard on its effective date of January 1, 2018 under the cumulative effect transition method. No adjustment was recorded to the Company’s opening balance of retained earnings on January 1, 2018 as there was no impact to net income. Additionally, comparative information beginning in 2018 will not be restated and will continue to be reported in a manner consistent with Revenue Recognition (Topic 605). The Company also expects that the effect of adoption of ASU No. 2014-09 will be immaterial to the Company on an on-going basis.



F-13





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



In February 2016, the FASB issued ASU No. 2016-02, “Leases,” which changes lessee accounting to reflect the financial liability and right-of-use assets that are inherent to leasing an asset on the balance sheet. The standard requires a modified retrospective approach, with restatement of the prior periods presented in the year of adoption, subject to any FASB modifications. This standard will be effective for the first annual reporting period beginning after December 15, 2018. The Company anticipates adopting this standard on January 1, 2019. In evaluating the effect that ASU No. 2016-02 will have on the Company’s consolidated financial statements and related disclosures, the Company believes the impact will be minimal to the Company’s ongoing consolidated statements of operations.



In August 2016, the FASB issued ASU No. 2016-15, “Classification of Certain Cash Receipts and Cash Payments,” which addresses the Statement of Cash Flow classification and presentation of certain cash transactions. ASU No. 2016-15 is effective for the Company’s fiscal year commencing on January 1, 2018. The effect of this amendment is to be applied retrospectively where practical and early adoption is permitted. The Company adopted ASU No. 2016-15 for the Company’s fiscal year commencing on January 1, 2018. The Company does not believe that the adoption of ASU No. 2016-15 has a material effect on the Company’s ongoing consolidated financial position or the Company’s ongoing consolidated results of operations.



In
November 2016, the FASB issued ASU No. 2016-18, “Classification of Restricted Cash,” which requires that amounts generally
described as restricted cash and restricted cash equivalents be included with cash and cash equivalents when reconciling the beginning-of-period
and end-of-period total amounts shown on the statement of cash flows. This standard will be effective for the first annual period
beginning after December 15, 2017, including interim periods within those periods. The Company adopted this standard on January
1, 2018. As a result, restricted cash reserves are included with cash and cash equivalents on the Company’s consolidated
statements of cash flows. The adoption did not change the presentation of the Company’s consolidated balance sheets.



The
following table provides additional detail by financial statement line item of the ASU No. 2016-18 impact on the Company’s
consolidated statement of cash flows for the years ended December 31, 2018 and 2017:



|(in thousands)                                                  |  |   | As Reported
(Pre-Adoption) |   |  |   | ASU No. 2016-18
Impact |   |  |   | Reported
(Post Adoption) |  
|--------------------------------------------------------------- |  | - | -------------------------- | - |  | - | ---------------------- | - |  | - | ------------------------ | -
|Year Ended December 31, 2018                                    |  |   |                            |   |  |   |                        |   |  |   |                          |  
|Net change in cash, cash equivalents and restricted cash        |  | $ | 776                        |   |  | $ | (3,317                 | ) |  | $ | (2,541                   | )
|Cash, cash equivalents and restricted cash at beginning of year |  |   | 8,214                      |   |  |   | 13,521                 |   |  |   | 21,735                   |  
|Cash, cash equivalents and restricted cash at end of year       |  | $ | 8,990                      |   |  | $ | 10,204                 |   |  | $ | 19,194                   |  
|                                                                |  |   |                            |   |  |   |                        |   |  |   |                          |  
|Year Ended December 31, 2017                                    |  |   |                            |   |  |   |                        |   |  |   |                          |  
|Net change in cash, cash equivalents and restricted cash        |  | $ | (11,363                    | ) |  | $ | 11,650                 |   |  | $ | 287                      |  
|Cash, cash equivalents and restricted cash at beginning of year |  |   | 19,577                     |   |  |   | 1,871                  |   |  |   | 21,448                   |  
|Cash, cash equivalents and restricted cash at end of year       |  | $ | 8,214                      |   |  | $ | 13,521                 |   |  | $ | 21,735                   |  



In January 2017, the FASB issued ASU No. 2017-01, “Clarifying the Definition of a Business,” with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as an acquisition of assets or a business. ASU No. 2017-01 is effective for the Company’s fiscal year commencing on January 1, 2018. The effect of this guidance is to be applied prospectively and early adoption is permitted. The Company does not believe that the adoption of ASU No. 2017-01 will have a material effect on the Company’s ongoing consolidated financial position or the Company’s ongoing consolidated results of operations.



In February 2017, the FASB issued ASU No. 2017-05, “Other Income-Gains and Losses from the Derecognition of Nonfinancial Assets: Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets,” which clarifies the scope of asset derecognition and adds further guidance for recognizing gains and losses from the transfer of nonfinancial assets in contracts with non-customers. ASU No. 2017-05 will impact the recognition of gains and losses from hotel sales. This standard is effective for the first annual period beginning after December 15, 2017, including interim periods within those periods. Early adoption is permitted. The Company adopted this standard on January 1, 2018 and does not anticipate that ASU No. 2017-05 will affect the Company’s ongoing consolidated statements of operations and comprehensive income.



In August 2017, the FASB issued ASU No. 2017-12, “Derivatives and Hedging: Targeted Improvements to Accounting for Hedging Activities,” which improves the financial reporting of hedging relationships to better portray the economic results of an entity’s risk management activities in its financial statements and simplifies the application of hedge accounting. This standard will be effective for the first annual period beginning after December 15, 2018, including interim periods within those periods. Early adoption is permitted. The Company adopted this standard on January 1, 2018 and aside from minor presentation changes in its disclosure on derivative and hedging activities, it will not have a material effect on the Company’s ongoing consolidated financial statements.



| | 3. | Investment in Hotel Properties
| | -- | ------------------------------



The following table sets forth summary information regarding the Company’s investment in hotel properties as of December 31, 2018 (all $ amounts in thousands):



|****Property Name****        | ******** | ****Date Acquired**** | ******** | ****Location****                 | ******** | ****Ownership Interest**** | ******** | ******** | ****OriginalPurchasePrice(1)**** | ******** | ******** | ****Rooms**** | ******** | ******** | ****MortgageDebtOutstanding(2)**** | ********
|---------------------------- | -------- | --------------------- | -------- | -------------------------------- | -------- | -------------------------- | -------- | -------- | -------------------------------- | -------- | -------- | ------------- | -------- | -------- | ---------------------------------- | --------
|Residence Inn Austin         |          | October 15, 2015      |          | Austin, Texas                    |          |                            | 100      | %        |                                  | $        | 27,500   |               |          |          | 112                                |         
|Springhill Suites Seattle    |          | May 24, 2016          |          | Seattle, Washington              |          |                            | 100      | %        |                                  |          | 74,100   |               |          |          | 234                                |         
|Homewood Suites Woodlands    |          | September 27, 2017(5) |          | The Woodlands, Texas             |          |                            | 100      | %        |                                  |          | 17,356   |               |          |          | 91                                 |         
|Hyatt Place Germantown       |          | September 27, 2017(5) |          | Germantown, Tennessee            |          |                            | 100      | %        |                                  |          | 16,074   |               |          |          | 127                                |         
|Hyatt Place North Charleston |          | September 27, 2017(5) |          | North Charleston, South Carolina |          |                            | 100      | %        |                                  |          | 13,806   |               |          |          | 113                                |         
|Hampton Inn Austin           |          | September 27, 2017(5) |          | Austin, Texas                    |          |                            | 100      | %        |                                  |          | 19,328   |               |          |          | 123                                |         
|Residence Inn Grapevine      |          | September 27, 2017(5) |          | Grapevine, Texas                 |          |                            | 100      | %        |                                  |          | 25,245   |               |          |          | 133                                |         
|Marriott Courtyard Lyndhurst |          | September 27, 2017(5) |          | Lyndhurst, New Jersey            |          |                            | (3       | )        |                                  |          | 39,547   |               |          |          | 227                                |         
|Hilton Garden Inn Austin     |          | September 27, 2017(5) |          | Austin, Texas                    |          |                            | 100      | %        |                                  |          | 29,288   |               |          |          | 138                                |         
|Hampton Inn Great Valley     |          | September 27, 2017(5) |          | Frazer, Pennsylvania             |          |                            | 100      | %        |                                  |          | 15,285   |               |          |          | 125                                |         
|Embassy Suites Nashville     |          | September 27, 2017(5) |          | Nashville, Tennessee             |          |                            | 100      | %        |                                  |          | 82,207   |               |          |          | 208                                |         
|Homewood Suites Austin       |          | September 27, 2017(5) |          | Austin, Texas                    |          |                            | 100      | %        |                                  |          | 18,835   |               |          |          | 96                                 |         
|Townplace Suites Fort Worth  |          | September 27, 2017(5) |          | Fort Worth, Texas                |          |                            | (4       | )        |                                  |          | 11,242   |               |          |          | 95                                 |         
|Hampton Inn Houston          |          | September 27, 2017(5) |          | Houston, Texas                   |          |                            | 100      | %        |                                  |          | 9,958    |               |          |          | 119                                |         
|****Totals****               |          |                       |          |                                  |          |                            |          |          |                                  | $        | 399,771  |               |          |          | 1,941                              |         



F-14








|(1) | Excludes closing costs and includes gain on acquisition.                                                                                                                                                                                                      
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(2) | As of December 31, 2018.                                                                                                                                                                                                                                      
|(3) | The Marriott Courtyard Lyndhurst is owned by MN Lyndhurst Venture, LLC, of which the OP is a member and holds 100% of the Class B membership interests therein. The Marriott Courtyard Lyndhurst is pledged as security for the Term Loan. See Note 5, “Debt.”
|(4) | The Townplace Suites Fort Worth is owned by MN Fort Worth Venture, LLC, of which the OP is a member and holds 100% of the Class B membership interests therein. The Townplace Suites Fort Worth is pledged as security for the Term Loan. See Note 5, “Debt.” 
|(5) | Property acquired as a result of the Mergers.                                                                                                                                                                                                                 



Investment in hotel properties consisted of the following at December 31, 2018 and December 31, 2017 (in thousands):



|                                    |  | ****December 31,**** |        
|----------------------------------- |  | -------------------- | -------
|                                    |  | ****2018****         |        
|Land                                |  | $                    | 70,456 
|Buildings and improvements          |  |                      | 297,680
|Furniture, fixtures and equipment   |  |                      | 43,632 
|Total cost                          |  |                      | 411,768
|Accumulated depreciation            |  |                      | (18,628
|Investment in hotel properties, net |  | $                    | 393,140



******Acquisition of Moody I******



On September 27, 2017, in connection with the Mergers, the Company acquired interests in twelve hotel properties, including two joint venture interests, and two notes receivable from related parties from Moody I (the “Moody I Portfolio”).



As of the date of the Mergers, there were 13,257,126 shares of Moody I common stock issued and outstanding, resulting in aggregate merger consideration of $135,885,546, consisting of the following (in thousands):



|Value of Company’s Class A Shares issued to Moody I stockholders |  | $ | 90,486  | 
|---------------------------------------------------------------- |  | - | ------- | 
|Cash consideration paid                                          |  |   | 45,400  | 
|Aggregate merger consideration                                   |  | $ | 135,886 | 



67% of Moody I stockholders elected to receive stock consideration in the Merger, resulting in the Company’s then current stockholders and former Moody I stockholders owning 58% and 42%, respectively, of the common stock of the Company outstanding after the consummation of the Merger, as follows (in thousands):



|Company shares outstanding at date of merger                                   |  |  | 4,904 | 
|------------------------------------------------------------------------------ |  |  | ----- | 
|Company Class A common shares issued to Moody I stockholders on date of Merger |  |  | 3,619 | 
|Total Company shares outstanding after Merger                                  |  |  | 8,523 | 



After consideration of all applicable factors pursuant to the business combination accounting rules, the Company is considered the “accounting acquirer” because the Company is issuing common stock to Moody I stockholders, and also due to various factors including that the Company’s stockholders immediately preceding the Merger hold the largest portion of the voting rights in the Company immediately after the Merger.



F-15





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



The aggregate purchase price consideration as shown above was allocated to assets and liabilities of Moody I was as follows (in thousands):



|****Assets****                                                                                                                                                                        |  |   |          |  
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | - | -------- | -
|Investment in hotel properties                                                                                                                                                        |  | $ | 298,171  |  
|Cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other assets, deferred income tax asset, deferred franchise costs, and due from related parties |  |   | 13,340   |  
|Notes receivable from related parties                                                                                                                                                 |  |   | 11,250   |  
|                                                                                                                                                                                      |  |   |          |  
|****Liabilities and Equity****                                                                                                                                                        |  |   |          |  
|Notes payable                                                                                                                                                                         |  |   | (132,745 | )
|Notes receivable from Moody I                                                                                                                                                         |  |   | (37,754  | )
|Accounts payable and accrued expenses, due to related parties, and operating partnership distributions payable                                                                        |  |   | (10,265  | )
|Noncontrolling interests in OP                                                                                                                                                        |  |   | (6,111   | )
|Aggregate merger consideration                                                                                                                                                        |  | $ | 135,886  |  



The purchase price allocation was based on the Company’s assessment of the fair value of the acquired assets and liabilities, as summarized below.



**Investment in hotel properties** – The Company estimated the fair value generally by applying an income approach methodology using a discounted cash flow analysis. Key assumptions include terminal capitalization rates, discount rates and future cash flows of the properties. Capitalization and discount rates were determined by market based on recent appraisals, transactions or other market data. This valuation methodology is based on Level 3 inputs in the fair value hierarchy.



**Cash and cash equivalents, restricted cash, accounts receivable, prepaid expenses and other assets, deferred franchise costs, and due from related parties** – The fair value was estimated to be their cost basis due to their short-term nature.



**Deferred income tax asset** – The Company estimated the fair value of the deferred income tax asset by estimating the amount of the net operating loss that will be utilized in future periods by the TRS. The estimated fair value assumes the net operating losses of Moody I will be able to be utilized by the Company’s TRS, subject to limitations caused by the change in control of the TRS.



**Notes receivable from related parties** – The fair value was determined using discounted cash flow analyses at market interest rates. The valuation methodology is based on Level 2 inputs in the fair value hierarchy.



**Notes payable** – The fair value was determined using discounted cash flow analyses at market interest rates, which are Level 2 inputs in the fair value hierarchy.



**Accounts payable and accrued expenses, due to related parties, and operating partnership distributions payable** – The fair value was estimated to be their cost basis due to their short-term maturities.



**Noncontrolling interests in Operating Partnership** – The Company estimated the portion of the fair value of the net assets of the OP owned by third parties. This valuation methodology is based on Level 3 inputs in the fair value hierarchy.



The
results of operations of the Moody I Portfolio have been included in the consolidated statement of operations as of the date
of acquisition of September 27, 2017. The following unaudited pro forma consolidated financial information for the year ended
December 31, 2017 is presented as if the Company acquired the Moody I Portfolio on January 1, 2017. This information is not
necessarily indicative of what the actual results of operations would have been had the Company completed the acquisition of
the Moody I Portfolio on January 1, 2017, nor does it purport to represent the Company’s future operations (in
thousands, except per common share amounts):



|Revenue                                       |  | $ | 85,210 |  
|--------------------------------------------- |  | - | ------ | -
|Net loss                                      |  |   | (6,172 | )
|Net loss attributable to common stockholders  |  |   | (5,863 | )
|Net loss per common share - basic and diluted |  | $ | (0.69  | )



F-16





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



|4. | Notes Receivable from Related Parties
|-- | -------------------------------------



As of December 31, 2018 and 2017, the amount of the mortgage note receivable from related party was $0 and $11,200,000, respectively. As of December 31, 2018 and 2017, the amounts of notes receivable from related parties were $6,750,000 and $11,250,000, respectively.



******Mortgage Note Receivable from Related Party******



On October 6, 2016, the Company originated a secured loan in the aggregate principal amount of $11,200,000 (the “MN TX II Note”) to MN TX II, LLC, a Texas limited liability company and a related party (“MN TX II”). Proceeds from the MN TX II Note were used by MN TX II solely to acquire a commercial real property located in Houston, Texas. The Company financed the MN TX II Note in part with the proceeds of a loan from a bank secured by the MN TX II Note, with an initial principal balance of $8,400,000.



The MN TX II Note was paid in full with all accrued interest thereon on June 29, 2018. While outstanding, interest on the outstanding principal balance of the MN TX II Note accrued at a fixed per annum rate equal to 5.50%, provided that in no event would the interest rate exceed the maximum rate permitted by applicable law. The MN TX II Note could be prepaid in whole or part by MN TX II without penalty at any time upon prior written notice to the Company. Interest income on the MN TX II Note was $309,854 and $624,555, respectively, for the years ended December 31, 2018 and 2017.



The estimated fair value of the MN TX II Note as of December 31, 2018 and December 31, 2017 was $0 and $11,200,000, respectively. The fair value of the MN TX II Note was estimated based on discounted cash flow analyses using the current incremental lending rates for similar types of lending arrangements as of the respective reporting dates. The discounted cash flow method of assessing fair value results in a general approximation of value, and such value may never actually be realized.



******Notes Receivable from Related Parties******



**Related Party Note**. On August 21, 2015, Moody I originated an unsecured loan in the aggregate principal amount of $9,000,000 (the “Related Party Note”) to Moody National DST Sponsor, LLC, a Texas limited liability company and an affiliate of Sponsor (“DST Sponsor”). Proceeds from the Related Party Note were used by DST Sponsor solely to acquire a commercial real property located in Katy, Texas (the “Subject Property”). The balance of the Related Party Note was $6,750,000 as of December 31, 2018 and 2017. The Company acquired the Related Party Note in connection with the Mergers.



On August 15, 2016, the maturity date of the Related Party note was extended from August 21, 2016 to August 21, 2017 and the origination fee in the amount of $90,000 and an extension fee in the amount of $45,000 were paid to Moody I by DST Sponsor. On September 24, 2017, the maturity date was extended to August 21, 2018. On August 30, 2018, the maturity date was extended to April 30, 2019.



**Related Party Mezzanine Note**. On April 29, 2016, Moody I originated an unsecured loan in the aggregate principal amount of $4,500,000 (the “Related Party Mezzanine Note”) to Moody Realty, an affiliate of Sponsor. Proceeds from the Related Party Mezzanine Note were used by Moody Realty solely to acquire a multifamily real property located in Houston, Texas. The Company acquired the Related Party Mezzanine Note in connection with the Mergers.



In March 2018, the unpaid principal balance of the Related Party Mezzanine Note and all accrued and unpaid interest thereon, and all other amounts due under the Related Party Mezzanine Note, were paid in full. Prior to the retirement of the Related Party Mezzanine Note, interest on the outstanding principal balance of such note accrued at a fixed per annum rate equal to 10%. Moody Realty paid an origination fee in the amount of $45,000, and an exit fee of $45,000 upon maturity.



Interest income from notes receivable from related parties was $864,900 and $348,800 for the years ended December 31, 2018 and 2017, respectively. Interest receivable on notes receivable from related parties was $810,000 and $0 as of December 31, 2018 and 2017, respectively.



The aggregate estimated fair values of the notes receivable from related parties as of December 31, 2018 and December 31, 2017 was $6,750,000 and $11,250,000, respectively. The fair value of the notes receivable from related parties was estimated based on discounted cash flow analyses using the current incremental lending rates for similar types of lending arrangements as of the respective reporting dates. The discounted cash flow method of assessing fair value results in a general approximation of value, and such value may never actually be realized.



**Lyndhurst Loan.** On September 6, 2017, the OP made a loan in the amount of $30,647,770 (the “Lyndhurst Loan”) to Moody National 1 Polito Lyndhurst Holding, LLC (“Lyndhurst Holding”), an indirect subsidiary of Moody I OP, and Lyndhurst Holding executed a promissory note (the “Lyndhurst Note”) evidencing the Lyndhurst Loan in favor of the Company. The Lyndhurst Note bore interest at a rate of 6.50% per annum and was secured by the Marriott Courtyard hotel property owned by Lyndhurst Holding and located in Lyndhurst, New Jersey (the “Lyndhurst Property”). The Lyndhurst Loan matured and was retired upon the consummation of the Mergers. Interest income from the Lyndhurst Loan was $0 and $115,000 for the years ended December 31, 2018 and 2017, respectively. Lyndhurst Holding used the proceeds of the Lyndhurst Loan to repay a loan secured by the Lyndhurst Property that had matured and had become due.



F-17





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



**Fort Worth Loan.** On August 15, 2017, the OP made a loan in the amount of $7,106,506 (the “Fort Worth Loan”) to Moody National International-Fort Worth Holding, LLC, (“Fort Worth Holding”), an indirect subsidiary of Moody I OP, and Fort Worth Holding executed a promissory note (the “Fort Worth Note”) evidencing the Fort Worth Loan in favor of the Company. The Fort Worth Note bore interest at a rate of 6.50% per annum and was secured by a Townplace Suites hotel property owned by Moody I and located in Ft. Worth, Texas (the “Fort Worth Property”). The Fort Worth Loan matured and was retired upon the consummation of the Mergers. Interest income from the Fort Worth Loan was $0 and $55,000 for the years ended December 31, 2018 and 2017, respectively. Fort Worth Holding used the proceeds of the Fort Worth Loan to repay an existing loan secured by the Fort Worth Property that had matured and had become due. See Note 7, “Related Party Arrangements.”



|5. | Debt
|-- | ----



The Company’s aggregate borrowings are reviewed by the Company’s board of directors at least quarterly. Under the Company’s Articles of Amendment and Restatement (as amended, the “Charter”), the Company is prohibited from borrowing in excess of 300% of the value of the Company’s net assets. “Net assets” for purposes of this calculation is defined to be the Company’s total assets (other than intangibles), valued at cost prior to deducting depreciation, reserves for bad debts and other non-cash reserves, less total liabilities. However, the Company may temporarily borrow in excess of these amounts if such excess is approved by a majority of the Company’s independent directors and disclosed to stockholders in the Company’s next quarterly report, along with an explanation for such excess. As of December 31, 2018, the Company’s debt levels did not exceed 300% of the value of the Company’s net assets, as defined above.



As of December 31, 2018 and 2017, the Company’s mortgage notes payable secured by the respective assets, consisted of the following (all $ amounts in thousands):



|****Loan****                                                |  | ****Principalas of December 31, 2018**** |         |   | ****Principal as of December 31, 2017**** |   |         | ****Interest Rate at December 31, 2018**** |  |  | ****Maturity Date****   |  
|----------------------------------------------------------- |  | ---------------------------------------- | ------- | - | ----------------------------------------- | - | ------- | ------------------------------------------ |  |  | ----------------------- | -
|Residence Inn Austin(1)                                     |  | $                                        | 16,554  |   |                                           | $ | 16,575  |                                            |  |  | 4.580                   | %
|Springhill Suites Seattle(2)                                |  |                                          | 44,884  |   |                                           |   | 45,000  |                                            |  |  | 4.380                   | %
|MN TX II Note(3)                                            |  |                                          | —       |   |                                           |   | 8,400   |                                            |  |  | 4.500                   | %
|Homewood Suites Woodlands(4)                                |  |                                          | 9,066   |   |                                           |   | 9,209   |                                            |  |  | 4.690                   | %
|Hyatt Place Germantown(4)                                   |  |                                          | 7,025   |   |                                           |   | 7,179   |                                            |  |  | 4.300                   | %
|Hyatt Place North Charleston(4)                             |  |                                          | 7,158   |   |                                           |   | 7,292   |                                            |  |  | 5.193                   | %
|Hampton Inn Austin(4)                                       |  |                                          | 10,687  |   |                                           |   | 10,871  |                                            |  |  | 5.426                   | %
|Residence Inn Grapevine(4)                                  |  |                                          | 12,341  |   |                                           |   | 12,556  |                                            |  |  | 5.250                   | %
|Hilton Garden Inn Austin(4)                                 |  |                                          | 18,401  |   |                                           |   | 18,707  |                                            |  |  | 4.530                   | %
|Hampton Inn Great Valley(4)                                 |  |                                          | 7,994   |   |                                           |   | 8,120   |                                            |  |  | 4.700                   | %
|Embassy Suites Nashville(4)                                 |  |                                          | 41,998  |   |                                           |   | 42,715  |                                            |  |  | 4.2123                  | %
|Homewood Suites Austin(4)                                   |  |                                          | 10,778  |   |                                           |   | 10,946  |                                            |  |  | 4.650                   | %
|Hampton Inn Houston(4)                                      |  |                                          | 4,480   |   |                                           |   | 4,604   |                                            |  |  | 7.250                   | %
|Term Loan(5)                                                |  |                                          | 26,300  |   |                                           |   | 67,000  |                                            |  |  | 30-day LIBOR plus 3.750 | %
|Short
Term Loan(6)                                          |  |                                          | 12,971  |   |                                           |   | —       |                                            |  |  | 30-day LIBOR plus 2.50  | %
|Total notes payable                                         |  |                                          | 230,637 |   |                                           |   | 269,174 |                                            |  |  |                         |  
|Less unamortized debt issuance costs                        |  |                                          | (3,463  | ) |                                           |   | (4,838  | )                                          |  |  |                         |  
|Total notes payable, net of unamortized debt issuance costs |  | $                                        | 227,174 |   |                                           | $ | 264,336 |                                            |  |  |                         |  



F-18





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**






|(1) | Monthly payments of interest are due and payable until the maturity date. Monthly payments of principal are due and payable beginning in December 2017 and continue to be due and payable until the maturity date.                                                                                                                                                                                                               | 
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | 
|(2) | Monthly payments of interest only were due and payable in calendar year 2017, after which monthly payments of principal and interest are due and payable until the maturity date.                                                                                                                                                                                                                                                | 
|(3) | Monthly payments of interest only were due until the maturity date. The entire principal balance and all interest thereon was repaid in full prior to June 30, 2018.                                                                                                                                                                                                                                                             | 
|(4) | Monthly payments of principal and interest are due and payable until the maturity date.                                                                                                                                                                                                                                                                                                                                          | 
|(5) | Monthly payments of interest were due and payable until October 2017. Monthly payments of principal and interest were due and payable beginning in November 2017 until the maturity date. On October 24, 2018, the maturity date of the Term Loan was extended to September 27, 2019, as discussed below. The Marriott Courtyard Lyndhurst and Townplace Suites Fort Worth properties are pledged as security for the Term Loan.
|(6) | Monthly payments of
interest only were due until the maturity date. All unpaid principal and interest thereon will be due at maturity on April
24, 2019.                                                                                                                                                                                                                                                                        
|    |                                                                                                                                                                                                                                                                                                                                                                                                                                  | 



Hotel properties secure their respective loans. The loan from a bank with which the Company financed the MN TX II Note was secured by the MN TX II Note. The Term Loan is partially secured by Marriott Courtyard Lyndhurst and Townplace Suites Fort Worth, and is partially unsecured.



Scheduled maturities of the Company’s notes payable as of December 31, 2018 are as follows (in thousands):



|****Years ending December 31,**** |  |   |        
|--------------------------------- |  | - | -------
|2019                              |  | $ | 42,597 
|2020                              |  |   | 3,463  
|2021                              |  |   | 3,655  
|2022                              |  |   | 3,832  
|2023                              |  |   | 20,415 
|Thereafter                        |  |   | 156,674
|Total                             |  | $ | 230,636



******Term Loan Agreement******



On September 27, 2017, the OP, as borrower, the Company and certain of the Company’s subsidiaries, as guarantors, and KeyBank National Association (“KeyBank”), as agent and lender, entered into a term loan agreement (as amended, the “Term Loan Agreement”) (KeyBank, in its capacity as lender, together with any other lender institutions that may become parties thereto, are referred to as the “Lenders”). Pursuant to the Term Loan Agreement, the Lenders have made a term loan to the OP in the principal amount of $70.0 million (the “Term Loan”). Capitalized terms used in this description of the Term Loan and not defined herein have the same meaning as in the Term Loan Agreement. The Company used proceeds from the Term Loan to pay the cash consideration in connection with the Mergers, other costs and expenses related to the Mergers and for other corporate purposes. The outstanding principal of the Term Loan will initially bear interest, payable monthly, at either (i) 6.25% per year over the base rate, which is defined in the Term Loan Agreement as the greatest of (a) the fluctuating annual rate of interest announced from time to time by the Agent at the Agent’s Head Office as its “prime rate,” (b) the then applicable LIBOR for a one month Interest Period plus one percent (1.00%), or (c) one half of one percent (0.5%) above the Federal Funds Effective Rate or (ii) 7.25% per year over the LIBOR rate for the applicable Interest Period, but upon reduction of the outstanding principal balance of the Term Loan to a specified level, the margins over the base rate or LIBOR rate will be reduced to 2.95% and 3.95%, respectively. As a condition to the funding of the Term Loan, the OP has entered into an interest rate cap arrangement with KeyBank that caps LIBOR at 1.75% until the initial Maturity Date with respect to $26.0 million of the principal of the Term Loan. The Company began making principal payments of $1.5 million per month in November 2017.



On March 28, 2018, the parties to the Term Loan Agreement entered into a letter agreement, or the Term Loan Letter Agreement, pursuant to which the parties thereto agreed to change the commencement of the Company’s obligation under the Term Loan Agreement to raise $10 million per quarter in gross offering proceeds to the calendar quarter June 30, 2017. The Company satisfied such obligation with respect to the calendar quarter ended December 31, 2018.



The Term Loan originally matured on September 27, 2018. The maturity date of the Term Loan was originally extended to October 26, 2018. On October 24, 2018, the maturity date of the Term Loan was extended again to September 27, 2019 in connection with the partial refinancing of the Term Loan, subject to satisfaction of certain conditions, including payment of an extension fee in the amount of 0.5% of the then outstanding principal amount of the Term Loan. The Outstanding Balance of $26.5 million as of October 24, 2018, together with any and all accrued and unpaid interest thereon, and all other Obligations, will be due on the maturity date of the Term Loan. In addition, the Term Loan originally provided for monthly interest payments, for mandatory prepayments of principal from the proceeds of certain capital events, and for monthly payments of principal in an amount equal to the greater of (i) 50% the OP’s Consolidated Net Cash Flow or (ii) $1,500,000. In connection with the extension of the Term Loan on October 24, 2018, monthly payments of principal of $100,000 per month, and the margins over the base rate or LIBOR rate will be 2.75% and 3.75%, respectively. The Term Loan may be prepaid at any time, in whole or in part, without premium or penalty, as described in the Term Loan Agreement. Upon the occurrence of an event of default, the Lenders may accelerate the payment of the Outstanding Balance.



F-19





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



The performance of the Company’s obligations under the Term Loan Agreement is secured by, among other things, mortgages on the Marriott Courtyard Lyndhurst and Townplace Suites Fort Worth, and by pledges of certain portions of the ownership interests in certain subsidiaries of the OP. Pursuant to a Guaranty Agreement in favor of KeyBank, the Company and certain of its subsidiaries, including the owners of the Lyndhurst hotel property and Fort Worth hotel property, will be fully and personally liable for the payment and performance of the obligations set forth in the Term Loan Agreement and all other loan documents, including the payment of all indebtedness and obligations due under the Term Loan Agreement.



The Term Loan Agreement also contains various customary covenants, including but not limited to financial covenants, covenants requiring monthly deposits in respect of certain property costs, such as taxes, furniture, fixtures and equipment, and insurance, covenants imposing restrictions on indebtedness and liens, and restrictions on investments and participation in other asset disposition, merger or business combination or dissolution transactions.



Failure of the Company to comply with financial and other covenants contained in its mortgage loan or the Term Loan could result from, among other things, changes in results of operations, the incurrence of additional debt or changes in general economic conditions.



If the Company violates financial and other covenants contained in any of the mortgage loans or Term Loan described above, the Company may attempt to negotiate waivers of the violations or amend the terms of the applicable mortgage loan or the Term Loan with the lenders thereunder; however, the Company can make no assurance that it would be successful in any such negotiations or that, if successful in obtaining waivers or amendments, such amendments or waivers would be on terms attractive to the Company. If a default under the mortgage loans or the Term Loan were to occur, the Company would possibly have to refinance the debt through additional debt financing, private or public offering of debt securities, or additional equity financings. If the company is unable to refinance its debt on acceptable terms, including a maturity of the mortgage loans or the Term Loan, it may be forced to dispose of the hotel properties on disadvantageous terms, potentially resulting in losses that reduce cash flow from operating activities. If, at the time of any refinancing, prevailing interest rates or other factors result in higher interest rates upon refinancing, increase interest expense would lower the Company’s cash flow, and, consequently, cash available for distribution to stockholders.



Requirements associated with a mortgage loan to deposit and disburse operating receipts in a specified manner may limit the overall liquidity for the Company as cash from the hotel securing such mortgage would not be available for the Company to use. If the Company is unable to meet mortgage payment obligations, including the payment obligation upon maturity of the mortgage borrowing, the mortgage securing the specific property could be foreclosed upon by, or the property could be otherwise transferred to, the mortgagee with a consequent loss of income and asset value to the Company.



As of December 31, 2018, the Company was in compliance with all debt covenants, current on all loan payments and not otherwise in default under the mortgage loans or the Term Loan.



******Short Term Loan******



On October 24, 2018, the Company and the OP issued a promissory note in favor Green Bank, N.A. in the original principal amount of $16,000,000 (“Short Term Loan”). The proceeds of the promissory note were used to retire a portion of the Term Loan, resulting in a balance of $26.5 million for the Term Loan as of October 24, 2018. The maturity date of the promissory note is April 24, 2019 and the note bears interest at an annual rate equal to the one-month London Interbank Offered Rate (LIBOR) plus 2.5%. The Company and the OP are collectively required to make a monthly payment on the outstanding principal and interest of the promissory note equal to the greater of $1,500,000 and 50% of our consolidated net cash flow. The promissory note may be prepaid at any time in whole or in part without penalty.



The estimated fair value of the Company’s notes payable as of December 31, 2018 and 2017 was $231,000,000 and $269,000,000, respectively. The fair value of the notes payable was estimated based on discounted cash flow analyses using the current incremental borrowing rates for similar types of borrowing arrangements as of the respective reporting dates. The discounted cash flow method of assessing fair value results in a general approximation of value, and such value may never actually be realized.



F-20





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



|6. | Equity
|-- | ------



******Capitalization******



Under its Charter, the Company has the authority to issue 1,000,000,000 shares of common stock and 100,000,000 shares of preferred stock. All shares of such stock have a par value of $0.01 per share. On August 15, 2014, the Company sold 8,000 shares of common stock to the Sponsor at a purchase price of $25.00 per share for an aggregate purchase price of $200,000, which was paid in cash. As of December 31, 2018, there were a total of 10,635,728 shares of the Company’s common stock issued and outstanding, including 7,011,982 shares, net of redemptions, issued in the Offering, 3,570,746 shares, net of redemptions, issued in connection with the Merger, the 8,000 shares sold to Sponsor and 45,000 shares of restricted stock, as discussed in Note 8, “Incentive Award Plan,” as follows:



|****Class****  |  | ****Shares Outstanding as of December 31, 2018**** |           
|-------------- |  | -------------------------------------------------- | ----------
|Class A Shares |  |                                                    | 10,294,007
|Class D Shares |  |                                                    | —         
|Class T Shares |  |                                                    | 270,162   
|Class I Shares |  |                                                    | 71,559    
|****Total****  |  |                                                    | 10,635,728



The Company’s board of directors is authorized to amend the Charter without the approval of the stockholders to increase the aggregate number of authorized shares of capital stock or the number of shares of any class or series that the Company has authority to issue.



******Distributions******



The Company’s board of directors has authorized and declared a distribution to its stockholders for 2018 that will be (1) calculated daily and reduced for class-specific expenses; (2) payable in cumulative amounts on or before the 15th day of each calendar month to stockholders of record as of the last day of the previous month; and (3) calculated at a rate of $1.7528 per share of the Company’s common stock per year, or approximately $0.00480 per share per day, before any class-specific expenses. The Company’s board of directors authorized and declared a distribution to its stockholders for 2017 that (1) was calculated daily and reduced for class-specific expenses; (2) was payable in cumulative amounts on or before the 15th day of each calendar month to stockholders of record as of the last day of the previous month; and (3) was calculated at a rate of $1.75 per share of the Company’s common stock per year, or approximately $0.00479 per share per day, before any class-specific expenses. The Company first paid distributions on September 15, 2015.



The following table summarizes distributions paid in cash and pursuant to the DRP for the three and year ended December 31, 2018 and 2017 (in thousands):



|****Period****      |  | ****Cash Distribution**** |        |  | ****DistributionPaid Pursuantto DRP(1)**** |   |       | ****Total Amount of Distribution**** | 
|------------------- |  | ------------------------- | ------ |  | ------------------------------------------ | - | ----- | ------------------------------------ | 
|First Quarter 2018  |  | $                         | 3,218  |  |                                            | $ | 634   |                                      | 
|Second Quarter 2018 |  |                           | 3,039  |  |                                            |   | 963   |                                      | 
|Third Quarter 2018  |  |                           | 3,241  |  |                                            |   | 1,034 |                                      | 
|Fourth Quarter 2018 |  |                           | 3,437  |  |                                            |   | 1,087 |                                      | 
|Total               |  | $                         | 12,935 |  |                                            | $ | 3,718 |                                      | 
|                    |  |                           |        |  |                                            |   |       |                                      | 
|First Quarter 2017  |  | $                         | 1,017  |  |                                            | $ | 410   |                                      | 
|Second Quarter 2017 |  |                           | 1,325  |  |                                            |   | 590   |                                      | 
|Third Quarter 2017  |  |                           | 1,478  |  |                                            |   | 627   |                                      | 
|Fourth Quarter 2017 |  |                           | 2,161  |  |                                            |   | 820   |                                      | 
|Total               |  | $                         | 5,981  |  |                                            | $ | 2,447 |                                      | 










| | (1) | Amount of distributions paid in shares of common stock pursuant to the DRP.
| | --- | ---------------------------------------------------------------------------



F-21





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



******Noncontrolling Interest in Operating Partnership******



Noncontrolling interest in the OP at December 31, 2018 and 2017 was $5,199,310 and $6,062,150, respectively, which represented 316,037 common units in the OP issued in connection with the acquisition of the Springhill Suites Seattle and the Partnership Merger, and is reported in equity in the consolidated balance sheets. Loss from the OP attributable to these noncontrolling interests was $308,892 and $260,071 for the years ended December 31, 2018 and 2017, respectively.



|7. | Related Party Arrangements
|-- | --------------------------



Pursuant to the Advisory Agreement, the Advisor and certain affiliates of Advisor receive fees and compensation in connection with the Company’s public offerings and the acquisition, management and sale of the Company’s real estate investments. In addition, in exchange for $1,000 and in consideration of services to be provided by the Advisor, the OP has issued an affiliate of the Advisor, Moody LPOP II, a separate, special limited partnership interest, in the form of Special Limited Partnership Interests. For further detail, please see Note 9, “Subordinated Participation Interest.”



******Sales Commissions, Dealer Manager Fees and Stockholder Servicing Fees******



From January 1, 2017 through June 12, 2017, the Company paid Moody Securities an up-front selling commission of up to 7.0% of the gross proceeds of what are now the Class A Shares sold in the Company’s primary offering and a dealer manager fee of up to 3.0% of the gross proceeds of what are now the Class A Shares sold in the Company’s primary offering. Beginning on June 12, 2017, the Company reallocated its common shares into four separate share classes with the following fees: (A) up-front selling commissions of up to (i) 7.0% of the gross proceeds of the Class A Shares sold in the Company’s primary offering and (ii) 3.0% of the gross proceeds of the Class T Shares sold in the Company’s primary offering; (B) up-front dealer manager fees of up to (i) 3.0% of the gross proceeds of the Class A Shares sold in the Company’s primary offering and (ii) 2.5% of the gross proceeds of the Class T Shares sold in the Company’s primary offering (the Sponsor may also pay Moody Securities (i) up-front dealer manager fees of up to 1.0% of the total amount of Class I Shares purchased in the primary offering and (ii) up-front selling commissions of up to 3.0% on purchases of $5,000,000 or more of Class D Shares purchased in the primary offering, which will not be reimbursed by the Company); and (C) a trailing stockholder servicing fee of (i) 1.0% per annum of the NAV of Class T Shares sold in the primary offering and (ii) 0.5% per annum of the NAV of Class D Shares sold in the primary offering. Shares sold pursuant to the DRP are not subject to selling commissions, dealer manager fees or stockholder servicing fees. Moody Securities may reallow all or a portion of the foregoing selling commissions, dealer manager fees or stockholder servicing fees to participating broker-dealers.



Beginning January 16, 2018, the Advisor assumed responsibility for the payment of all selling commissions, dealer manager fees and stockholder servicing fees paid in connection with the Company’s ongoing public offering; provided, however, that the Advisor intends to recoup the funding of such amounts through the Contingent Advisor Payment. In connection with the implementation of the Contingent Advisor Payment, the Company reduced the up-front selling commission paid with respect to the Class A Shares from up to 7.0% to up to 6.0% of the gross proceeds of the Class A Shares sold in the Company’s primary offering and reduced the dealer manager fee paid with respect to the Class A Shares from up to 3.0% to up to 2.5% of the gross proceeds of the Class A Shares sold in the Company’s primary offering. As of December 31, 2018, the Company and the Advisor had paid Moody Securities $9,423,133 in selling commissions and trailing stockholder servicing fees and $2,099,018 in dealer manager fees, which amounts have been recorded as a reduction to additional paid-in capital in the consolidated balance sheets and $3,731,889 which could potentially be recouped by the Advisor at a later date through the Contingent Advisor Payment.



******Organization and Offering Expenses******



The Advisor will receive reimbursement for organizational and offering expenses incurred on the Company’s behalf, but only to the extent that such reimbursements do not exceed actual expenses incurred by Advisor and do not cause the cumulative selling commissions, dealer manager fees, stockholder servicing fees and other organization and offering expenses borne by the Company to exceed 15.0% of gross offering proceeds from the sale of shares in the Company’s follow-on offering as of the date of reimbursement.



F-22





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



As of December 31, 2018, total offering costs for the initial public offering and the follow-on offering were $19,344,749, comprised of $12,333,647 of offering costs incurred directly by the Company and $7,011,102 in offering costs incurred by and reimbursable to the Advisor. As of December 31, 2018, total offering costs for the initial public offering were $18,365,295, comprised of $12,333,647 of offering costs incurred directly by the Company and $6,031,648 in offering costs incurred by and reimbursable to the Advisor. As of December 31, 2018, total offering costs for the follow-on offering were $979,454, comprised of $0 of offering costs incurred directly by the Company and $979,454 in offering costs incurred by and reimbursable to the Advisor. As of December 31, 2018, the Company had $52,275 due to the Advisor for reimbursable offering costs.



******Acquisition Fees******



As of January 16, 2018, the Advisor assumed responsibility for the payment of all selling commissions, dealer manager fees and stockholder servicing fees in connection with the Offering. In connection therewith, as of January 16, 2018, the acquisition fee payable to the Advisor was increased from 1.5% to up to a maximum of 3.85% of (1) the cost of all investments the Company acquires (including the Company’s pro rata share of any indebtedness assumed or incurred in respect of the investment and exclusive of acquisition and financing coordination fees), (2) the Company’sallocable cost of investments acquired in a joint venture (includingthe Company’s pro rata share of the purchase price and the Company’s pro rata share of any indebtedness assumed or incurred in respect of that investment and exclusive of acquisition fees and financing coordination fees) or (3) the amount funded by the Company to acquire or originate a loan or other investment, including mortgage, mezzanine or bridge loans (including any third-party expenses related to such investment and exclusive of acquisition fees and financing coordination fees). The up to 3.85% acquisition fee consists of (i) a 1.5% base acquisition fee and (ii) up to an additional 2.35% contingent acquisition fee (the “Contingent Advisor Payment”). The 1.5% base acquisition fee will always be payable upon the acquisition of an investment by the Company, unless the receipt thereof is waived by the Advisor. The amount of the Contingent Advisor Payment to be paid in connection with the closing of an acquisition will be reviewed on an acquisition-by-acquisition basis and such payment shall not exceed the then-outstanding amounts paid by the Advisor for dealer manager fees, sales commissions or stockholder servicing fees at the time of such closing. In addition, the first $3,500,000 of aggregate Contingent Advisor Payments that would otherwise be paid to the Advisor (the “Contingent Advisor Holdback”), will be retained by the Company until January 16, 2019, at which time any portion of the Contingent Advisor Holdback owed to the Advisor will be paid. For purposes of determining the amount of Contingent Advisor Payment payable, the amounts paid by the Advisor for dealer manager fees, sales commissions or stockholder servicing fees and considered “outstanding” will be reduced by the amount of the Contingent Advisor Payment previously paid and taking into account the amount of the Contingent Advisor Holdback. The Advisor may waive or defer all or a portion of the acquisition fee at any time and from time to time, in the Advisor’s sole discretion. For the year ended December 31, 2018, the Company did not pay Advisor any acquisition fees. For the year ended December 31, 2017, the Company paid the Advisor acquisition fees of $670,000 in connection with the Mergers, which amount was equal to 1.5% of the cash consideration paid to Moody I stockholders



******Reimbursement of Acquisition Expenses******



The Advisor may also be reimbursed by the Company for actual expenses related to the evaluation, selection and acquisition of real estate investments, regardless of whether the Company actually acquires the related assets. The Company did not reimburse the Advisor for any acquisition expenses during the years ended December 31, 2018 and 2017.



******Financing Coordination Fee******



The Advisor also receives financing coordination fees of 1% of the amount available under any loan or line of credit made available to the Company and 0.75% of the amount available or outstanding under any refinanced loan or line of credit. The Advisor will pay some or all of these fees to third parties with whom it subcontracts to coordinate financing for the Company. The Company did not incur any financing coordination fees payable to the Advisor during year ended December 31, 2018. For the year ended December 31, 2017, the Company paid $1,720,000 in financing coordination fees to the Advisor in connection with the acquisition of the Moody I Portfolio based on the loans assumed from Moody I in connection with the Merger, including the debt held by the Company related to the Marriott Courtyard Lyndhurst and the Townplace Suites Forth Worth.



******Property Management Fee******



The Company pays Moody National Hospitality Management, LLC (“Property Manager”) a monthly hotel management fee equal to 4.0% of the monthly gross operating revenues from the properties managed by Property Manager for services it provides in connection with operating and managing properties. The hotel management agreements between the Company and the Property Manager generally have initial terms of ten years. Property Manager may pay some or all of the compensation it receives from the Company to a third-party property manager for management or leasing services. In the event that the Company contracts directly with a non-affiliated third-party property manager, the Company will pay Property Manager a market-based oversight fee. The Company will reimburse the costs and expenses incurred by Property Manager on the Company’s behalf, including legal, travel and other out-of-pocket expenses that are directly related to the management of specific properties, but the Company will not reimburse Property Manager for general overhead costs or personnel costs other than employees or subcontractors who are engaged in the on-site operation, management, maintenance or access control of the properties.  For the years ended December 31, 2018 and 2017, the Company paid the Property Manager property management fees of $3,185,388 and $1,409,841, and accounting fees of $420,000 and $154,000, respectively, which are included in hotel operating expenses in the accompanying consolidated statements of operations.



F-23





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



The Company pays an annual incentive fee to Property Manager. Such annual incentive fee is equal to 15% of the amount by which the operating profit from the properties managed by Property Manager for such fiscal year (or partial fiscal year) exceeds 8.5% of the total investment of such properties. Property Manager may pay some or all of this annual incentive fee to third-party sub-property managers for management services. For purposes of this annual incentive fee, “total investment” means the sum of (i) the price paid to acquire a property, including closing costs, conversion costs, and transaction costs; (ii) additional invested capital and (iii) any other costs paid in connection with the acquisition of the property, whether incurred pre- or post-acquisition. As of December 31, 2018, the Company had not paid any annual incentive fees to Property Manager.



******Asset Management Fee******



The Company will pay Advisor a monthly asset management fee of one-twelfth of 1.0% of the cost of investment of all real estate investments the Company acquires. For the year ended December 31, 2018 and 2017, the Company incurred asset management fees of $4,197,000 and $1,913,000, respectively, payable to the Advisor, which are recorded in corporate general and administrative expenses in the accompanying consolidated statements of operations.



******Disposition Fee******



The Company also pays the Advisor or its affiliates a disposition fee (subject to a limitation if the property was previously owned by Moody I discussed below) in an amount of up to one-half of the brokerage commission paid on the sale of an asset, but in no event greater than 3% of the contract sales price of each property or other investment sold; provided, however, in no event may the aggregate disposition fees paid to the Advisor and any real estate commissions paid to unaffiliated third parties exceed 6% of the contract sales price. During the first year following the consummation of the Mergers, if the Company sells a property that was previously owned by Moody I, then any disposition fee to which the Advisor would be entitled under the Advisory Agreement will be reduced by an amount equal to the portion of the Moody I Advisor Payment attributable to such property. As of December 31, 2018, the Company had not incurred any disposition fees payable to the Advisor.



******Operating Expense Reimbursement******



The Company will reimburse the Advisor for all expenses paid or incurred by the Advisor in connection with the services provided to the Company, subject to the limitation that the Company will not reimburse the Advisor for any amount by which the Company’s aggregate operating expenses (including the asset management fee payable to the Advisor) at the end of the four preceding fiscal quarters exceeds the greater of: (1) 2% of the Company’s average invested assets, or (2) 25% of the Company’s net income determined without reduction for any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of the Company’s assets for that period (the “2%/25% Limitation”). Notwithstanding the above, the Company may reimburse the Advisor for expenses in excess of the 2%/25% Limitation if a majority of the Company’s independent directors determines that such excess expenses are justified based on unusual and non-recurring factors. For the four fiscal quarters ended December 31, 2018, total operating expenses of the Company were $6,503,476, which included $4,861,283 in operating expenses incurred directly by the Company and $1,642,193 incurred by the Advisor on behalf of the Company. Of the $6,503,476 in total operating expenses incurred during the four fiscal quarters ended December 31, 2018, $0 exceeded the 2%/25% Limitation. The Company reimbursed the Advisor $1,642,000 during four fiscal quarters ended December 31, 2018, which includes reimbursements for quarters prior to the four quarters ended December 31, 2018. As of December 31, 2018, the Company had $376,000 due from the Advisor for operating expense reimbursement.



******Merger with Moody I******



See Note 1, “Organization—Merger with Moody National REIT I, Inc.”



F-24





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



******Fort Worth Loan******



On August 15, 2017, the OP made a loan in the amount of $7,106,506 (the “Fort Worth Loan”) to Moody National International-Fort Worth Holding, LLC, an indirect subsidiary of Moody I OP. The loan matured and was retired upon completion of the Mergers. Interest income from the Fort Worth Loan was $0 and $55,000 for the year ended December 31, 2018 and 2017, respectively.



******Lyndhurst Loan******



On September 6, 2017, the OP made a loan in the amount of $30,647,770 (the “Lyndhurst Loan”) to Moody National 1 Polito Lyndhurst Holding, LLC, an indirect subsidiary of Moody I OP. The loan matured and was retired upon completion of the Mergers. Interest income from the Lyndhurst Loan was $0 and $155,000 for the year ended December 31, 2018 and 2017, respectively.



******Related Party Mezzanine Note******



In March 2018, the unpaid principal balance of the Related Party Mezzanine Note and all accrued and unpaid interest thereon, and all other amounts due under the Related Party Mezzanine Note, were paid in full.



******Earnest Money******



The Company assigned its earnest money contract in the amount of $2,000,000 to a related party for consideration paid to the Company of $2,000,000 during the year ended December 31, 2017.



|8. | Incentive
Award Plan
|-- | --------------------



The Company has adopted an incentive plan (the “Incentive Award Plan”) that provides for the grant of equity awards to its employees, directors and consultants and those of the Company’s affiliates. The Incentive Award Plan authorizes the grant of non-qualified and incentive stock options, restricted stock awards, restricted stock units, stock appreciation rights, dividend equivalents and other stock-based awards or cash-based awards. Shares of common stock will be authorized and reserved for issuance under the Incentive Award Plan. The Company has also adopted an independent directors compensation plan (the “Independent Directors Compensation Plan”) pursuant to which each of the Company’s independent directors was entitled, subject to the Independent Directors Compensation Plan’s conditions and restrictions, to receive an initial grant of 5,000 shares of restricted stock when the Company raised the minimum offering amount of $2,000,000 in the Offering. Each new independent director who subsequently joins the Company’s board of directors will receive a grant of 5,000 shares of restricted stock upon his or her election to the Company’s board of directors. In addition, on the date of each of the first four annual meetings of the Company’s stockholders at which an independent director is re-elected to the Company’s board of directors, he or she will receive an additional grant of 2,500 shares of restricted stock. Subject to certain conditions, the non-vested shares of restricted stock granted pursuant to the Independent Directors Compensation Plan will vest and become non-forfeitable in four equal quarterly installments beginning on the first day of the first quarter following the date of grant; provided, however, that the restricted stock will become fully vested on the earlier to occur of (1) the termination of the independent director’s service as a director due to his or her death or disability or (2) a change in control of the Company. As of December 31, 2018, there were 1,955,000 common shares remaining available for future issuance under the Incentive Award Plan and the Independent Directors Compensation Plan.



The Company recorded compensation expense related to such shares of restricted stock of $361,020 and $227,695 for the years ended December 31, 2018 and 2017, respectively. As of December 31, 2018, there were 7,500 non-vested shares of restricted common stock granted pursuant to the Independent Directors Compensation Plan. The remaining unrecognized compensation expense associated with those 7,500 non-vested shares of $130,668 will be recognized during the first, second and third quarters of 2019.



The following is a summary of activity under the Independent Directors Compensation Plan for the years ended December 31, 2018 and 2017:



|                                                     |  | ****Number of Shares**** |         |   | ****Weighted Average********Grant Date********Fair Value**** |  
|---------------------------------------------------- |  | ------------------------ | ------- | - | ------------------------------------------------------------ | -
|Balance of non-vested shares as of December 31, 2016 |  |                          | 5,000   |   |                                                              | $
|Shares granted on August 10, 2017                    |  |                          | 5,000   |   |                                                              | $
|Shares granted on September 27, 2017                 |  |                          | 10,000  |   |                                                              | $
|Shares vested                                        |  |                          | (8,750  | ) |                                                              | $
|                                                     |  |                          |         |   |                                                              |  
|Balance of non-vested shares as of December 31, 2017 |  |                          | 11,250  |   |                                                              | $
|Shares granted on August 13, 2018                    |  |                          | 10,000  |   |                                                              | $
|Shares vested                                        |  |                          | (13,750 | ) |                                                              | $
|Balance of non-vested shares as of December 31, 2018 |  |                          | 7,500   |   |                                                              | $



F-25





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



|9. | Subordinated
Participation Interest
|-- | -----------------------------------



Pursuant to the limited partnership agreement for the OP, Moody LPOP II, the holder of the Special Limited Partnership Interests, is entitled to receive distributions equal to 15.0% of the OP’s net cash flows, whether from continuing operations, the repayment of loans, the disposition of assets or otherwise, but only after the Company’s stockholders (and current and future limited partnership interest holders of the OP other than the former limited partners of Moody I OP) have received, in the aggregate, cumulative distributions equal to their total invested capital plus a 6.0% cumulative, non-compounded annual pre-tax return on such aggregated invested capital. Former limited partners of Moody I OP must have received a cumulative annual return of 8.0%, which is equal to the same return to which such holders were entitled before distributions to the special limited partner of Moody I OP could have been paid under the limited partnership agreement of Moody I OP. In addition, Moody LPOP II is entitled to a separate payment if it redeems its Special Limited Partnership Interests. The Special Limited Partnership Interests may be redeemed upon: (1) the listing of the Company’s common stock on a national securities exchange or (2) the occurrence of certain events that result in the termination or non-renewal of the Advisory Agreement, in each case for an amount that Moody LPOP II would have been entitled to receive had the OP disposed of all of its assets at the enterprise valuation as of the date of the event triggering the redemption.



|10. | Commitments
and Contingencies
|--- | -----------------------------



******Restricted Cash******



Under certain management and debt agreements existing at December 31, 2018, the Company escrows payments required for property improvement plans, real estate taxes, replacement of hotel furniture and fixtures, debt service and rent holdback. The composition of the Company’s restricted cash as of December 31, 2018 and 2017 are as follows (in thousands):



|                             |  | ****December 31,**** |       
|---------------------------- |  | -------------------- | ------
|                             |  | ****2018****         |       
|Property improvement plan    |  | $                    | 1,239 
|Real estate taxes            |  |                      | 2,894 
|Insurance                    |  |                      | 231   
|Hotel furniture and fixtures |  |                      | 4,168 
|Debt service                 |  |                      | 764   
|Seasonality                  |  |                      | 883   
|Expense deposit              |  |                      | 10    
|Rent holdback                |  |                      | 15    
|Total restricted cash        |  | $                    | 10,204



******Franchise Agreements******



As of December 31, 2018, all of the Company’s hotel properties, including those acquired as part of the Moody I Portfolio, are operated under franchise agreements with initial terms ranging from 10 to 20 years. The franchise agreements allow the properties to operate under the franchisor’s brand. Pursuant to the franchise agreements, the Company pays a royalty fee generally between 3.0% and 6.0% of room revenue, plus additional fees for marketing, central reservation systems and other franchisor costs that amount to between 1.5% and 4.3% of room revenue. The Company incurred franchise fee expense of approximately $6,603,000 and $2,832,000 for the years ended December 31, 2018 and 2017, respectively, which amounts are included in hotel operating expenses in the accompanying consolidated statements of operations.



F-26





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



|11. | Income Taxes
|--- | ------------



The Company has formed a TRS that is a C-corporation for federal income tax purposes and uses the asset and liability method of accounting for income taxes. Tax return positions are recognized in the consolidated financial statements when they are “more-likely-than-not” to be sustained upon examination by the taxing authority. Deferred income tax assets and liabilities result from temporary differences. Temporary differences are differences between the tax bases of assets and liabilities and their reported amounts in the consolidated financial statements that will result in taxable or deductible amounts in future periods. A valuation allowance may be placed on deferred income tax assets, if it is determined that it is more likely than not that a deferred tax asset may not be realized.



As of December 31, 2018, the Company had operating loss carry-forwards of $3,599,399.



The Company had deferred tax assets of $2,303,000 as of December 31, 2018 and 2017, net of a valuation allowance of $1,194,000 and $0 as of December 31, 2018 and December 31, 2017, respectively, related to net operating loss carry forwards of the TRS which are included in prepaid expenses and other assets on the consolidated balance sheets. As of December 31, 2018, the TRS had a net operating loss carry-forward of $15,776,091, of which $7,292,853 was transferred from Moody I’s taxable REIT subsidiaries when they were merged into the Company’s TRS on the date of the closing of the Mergers.



The income tax expense (benefit) for the years ended December 31, 2018 and 2017 consisted of the following (in thousands):



|                                         |  | ****Years ended December 31,**** |       
|---------------------------------------- |  | -------------------------------- | ------
|                                         |  | ****2018****                     |       
|Current expense                          |  | $                                | 158   
|Deferred expense (benefit)               |  |                                  | (1,194
|Valuation provision for deferred benefit |  |                                  | 1,194 
|Total expense (benefit), net             |  | $                                | 158   
|                                         |  |                                  |       
|Federal                                  |  | $                                | (1,194
|Valuation provision for federal taxes    |  |                                  | 1,194 
|State                                    |  |                                  | 158   
|Total tax expense (benefit)              |  | $                                | 158   



The reconciliation of income tax expense (benefit) to the expected amount computed by applying federal statutory rate to income before income taxes is as follows:



|                                               |  | ****Years ended December 31,**** |       
|---------------------------------------------- |  | -------------------------------- | ------
|                                               |  | ****2018****                     |       
|Expected federal tax benefit at statutory rate |  | $                                | (1,998
|Tax impact of REIT election                    |  |                                  | 2,156 
|Income tax expense (benefit)                   |  | $                                | 158   



On December 31, 2018, the Company had net deferred tax assets of $2,303,000 primarily due to past years’ federal and state tax operating losses of the TRS. These loss carryforwards will generally expire in 2033 through 2037 if not utilized by then. The Company analyzes state loss carryforwards on a state by state basis and records a valuation allowance when management deems it more likely than not that future results will not generate sufficient taxable income in the respective state to realize the deferred tax asset prior to the expiration of the loss carryforwards. Management believes that it is more likely than not that the results of future operations of the TRS will generate sufficient taxable income to realize the deferred tax assets related to federal and state loss carryforwards prior to the expiration of the loss carryforwards. From time to time, the Company may be subjected to federal, state or local tax audits in the normal course of business.



The recently enacted tax reform bill, informally known as the Tax Cuts and Jobs Act, made significant changes to the U.S. federal income tax laws. For example, the top corporate income tax rate was reduced to 21%, and the corporate alternative minimum tax was repealed. Additionally, for taxable years beginning after December 31, 2017, the Tax Cuts and Jobs Act limits interest deductions for businesses, whether in corporate or pass-through form, to the sum of the taxpayer’s business interest income for the tax year and 30% of the taxpayer’s adjusted taxable income for the tax year, but the tax rules do permit a real estate business, such as a REIT, to elect out of the interest limitation rules in exchange for depreciating its real estate assets using alternative depreciation system principles. Technical corrections or other amendments to, or administrative guidance interpreting, the Tax Cuts and Job Act may be forthcoming at any time. The Company cannot predict the long-term effect of the Tax Cuts and Jobs Act or any future changes on REITs and their stockholders. For the Company, the reduction in the federal corporate tax rate resulted in a change to the net deferred tax assets of the TRS.



F-27





**MOODY NATIONAL REIT II, INC.**

**NOTES TO CONSOLIDATED FINANCIAL STATEMENTS**

**December 31, 2018 and 2017**



|12. | Subsequent
Events
|--- | -----------------



******Distributions Declared******



On December 31, 2018, the Company declared a distribution in the aggregate amount of $1,602,154, of which $1,114,635 was paid in cash on January 15, 2019, $352,824 was paid pursuant to the DRP in the form of additional shares of the Company’s common stock, $99,395 was paid on February 15, 2019, and $35,300 was deferred pending the return of letters of transmittal by former Moody I stockholders. On January 31, 2019, the Company declared a distribution in the aggregate amount of $1,555,304, of which $1,219,540 was paid in cash on February 15, 2019, $385,053 was paid pursuant to the DRP in the form of additional shares of the Company’s common stock, and $49,289 was paid in cash to reduce deferred dividends pending the return of letters of transmittal by former Moody I stockholders. On February 28, 2019, the Company declared a distribution in the aggregate amount of $1,466,518 of which $1,106,960 was paid in cash on March 15, 2019, $359,718 was paid pursuant to the DRP in the form of additional shares of the Company’s common stock, and $160 was paid in cash to reduce deferred dividends pending the return of letters of transmittal by former Moody I stockholders.





Approval of Proposed Acquisition of
Residence Inn Houston Medical Center



On March 29,
2019, the Company’s board of directors authorized the acquisition by the Company of a 182-unit Residence Inn by
Marriott hotel property located in Houston, Texas (the “Residence Inn Houston Medical Center”) from an affiliate
of Sponsor for an aggregate purchase price, exclusive of closing costs, of approximately $52.0 million. The Company intends
to finance a portion of the purchase price of the Residence Inn Houston Medical Center (i) by assuming an existing loan in
the amount of $29.1 million secured by a lien and security interest in the Residence Inn Houston Medical Center, and (ii)
by obtaining an additional unsecured loan in the amount of $22.9 million from the seller of the Residence Inn Houston
Medical Center. The acquisition is subject to various conditions to closing and there can be no guarantee that the Company
will complete the acquisition on the terms described above, or at all.





F-28





MOODY
NATIONAL REIT II, INC.SCHEDULE IIIREAL ESTATE ASSETS AND ACCUMULATED DEPRECIATIONDECEMBER 31, 2017
(in thousands)

|                                |  |                                      |  |                  |       |   |              |   |         |      |  |                             |                                 |  |  |       |         |  |                                        |            |         |      |  |   |                                |  |  |               |        |  |                                        |   |         |                             |  |                  
|------------------------------- |  | ------------------------------------ |  | ---------------- | ----- | - | ------------ | - | ------- | ---- |  | --------------------------- | ------------------------------- |  |  | ----- | ------- |  | -------------------------------------- | ---------- | ------- | ---- |  | - | ------------------------------ |  |  | ------------- | ------ |  | -------------------------------------- | - | ------- | --------------------------- |  | -----------------
|                                |  |                                      |  |                  |       |   |              |   |         |      |  | Initial
    Cost to Company |                                 |  |  |       |         |  |                                        | Total
Cost |         |      |  |   |                                |  |  |               |        | 
|Description                     |  | Location                             |  | OwnershipPercent |       |   | Encumbrances |   |         | Land |  |                             | Building,Improvements, and FF&E |  |  | Total |         |  | CostCapitalizedSubsequenttoAcquisition |            |         | Land |  |   | Building,Improvements and FF&E |  |  | Total
    (1) |        |  | AccumulatedDepreciationandAmortization |   |         | OriginalDate ofConstruction |  | Date
    Acquired
|Residence
    Inn Austin        |  | Austin, Texas                        |  |                  | 100.0 | % |              | $ | 16,554  |      |  | $                           | 4,310                           |  |  | $     | 23,190  |  |                                        | $          | 27,500  | (2)  |  | $ | 69                             |  |  | $             | 4,310  |  |                                        | $ | 23,259  |                             |  | $                
|Springhill Suites Seattle       |  | Seattle, Washington                  |  |                  | 100.0 | % |              |   | 44,884  |      |  |                             | 14,040                          |  |  |       | 60,060  |  |                                        |            | 74,100  |      |  |   | 2,026                          |  |  |               | 14,040 |  |                                        |   | 62,086  |                             |  |                  
|Homewood Suites Woodlands       |  | The Woodlands, Texas                 |  |                  | 100.0 | % |              |   | 9,066   |      |  |                             | 2,828                           |  |  |       | 14,528  |  |                                        |            | 17,356  |      |  |   | 300                            |  |  |               | 2,828  |  |                                        |   | 14,828  |                             |  |                  
|Hyatt Place Germantown          |  | Germantown, Tennessee                |  |                  | 100.0 | % |              |   | 7,025   |      |  |                             | 1,874                           |  |  |       | 14,200  |  |                                        |            | 16,074  |      |  |   | 57                             |  |  |               | 1,874  |  |                                        |   | 14,257  |                             |  |                  
|Hyatt Place North Charleston    |  | North Charleston, South
    Carolina |  |                  | 100.0 | % |              |   | 7,158   |      |  |                             | 783                             |  |  |       | 13,022  |  |                                        |            | 13,805  |      |  |   | 123                            |  |  |               | 783    |  |                                        |   | 13,145  |                             |  |                  
|Hampton Inn Austin              |  | Austin, Texas                        |  |                  | 100.0 | % |              |   | 10,687  |      |  |                             | 4,329                           |  |  |       | 14,999  |  |                                        |            | 19,328  |      |  |   | 157                            |  |  |               | 4,329  |  |                                        |   | 15,156  |                             |  |                  
|Residence Inn Grapevine         |  | Grapevine, Texas                     |  |                  | 100.0 | % |              |   | 12,341  |      |  |                             | 2,028                           |  |  |       | 23,217  |  |                                        |            | 25,245  |      |  |   | 350                            |  |  |               | 2,028  |  |                                        |   | 23,567  |                             |  |                  
|Marriott Courtyard Lyndhurst    |  | Lyndhurst, New Jersey                |  |                  | (3    | ) |              |   | –       |      |  |                             | 2,663                           |  |  |       | 36,885  |  |                                        |            | 39,548  |      |  |   | 175                            |  |  |               | 2,663  |  |                                        |   | 37,060  |                             |  |                  
|Hilton Garden Inn Austin        |  | Austin, Texas                        |  |                  | 100.0 | % |              |   | 18,401  |      |  |                             | 9,058                           |  |  |       | 20,230  |  |                                        |            | 29,288  |      |  |   | 114                            |  |  |               | 9,058  |  |                                        |   | 20,344  |                             |  |                  
|Hampton Inn Great Valley        |  | Frazer, Pennsylvania                 |  |                  | 100.0 | % |              |   | 7,994   |      |  |                             | 1,730                           |  |  |       | 13,554  |  |                                        |            | 15,284  |      |  |   | 1,683                          |  |  |               | 1,730  |  |                                        |   | 15,237  |                             |  |                  
|Embassy Suites Nashville        |  | Nashville, Tennessee                 |  |                  | 100.0 | % |              |   | 41,998  |      |  |                             | 14,805                          |  |  |       | 67,402  |  |                                        |            | 82,207  |      |  |   | 3,374                          |  |  |               | 14,805 |  |                                        |   | 70,776  |                             |  |                  
|Homewood Suites Austin          |  | Austin, Texas                        |  |                  | 100.0 | % |              |   | 10,778  |      |  |                             | 4,218                           |  |  |       | 14,617  |  |                                        |            | 18,835  |      |  |   | 749                            |  |  |               | 4,218  |  |                                        |   | 15,366  |                             |  |                  
|TownPlace Suites Fort
    Worth |  | Fort Worth, Texas                    |  |                  | (3    | ) |              |   | –       |      |  |                             | 4,240                           |  |  |       | 7,001   |  |                                        |            | 11,241  |      |  |   | 25                             |  |  |               | 4,240  |  |                                        |   | 7,026   |                             |  |                  
|Hampton
    Inn Houston         |  | Houston,
    Texas                   |  |                  | 100.0 | % |              |   | 4,480   |      |  |                             | 3,550                           |  |  |       | 6,410   |  |                                        |            | 9,960   |      |  |   | 2,795                          |  |  |               | 3,550  |  |                                        |   | 9,205   |                             |  |                  
|                                |  |                                      |  |                  |       |   |              |   |         |      |  |                             |                                 |  |  |       |         |  |                                        |            |         |      |  |   |                                |  |  |               |        |  |                                        |   |         |                             |  |                  
|                                |  |                                      |  |                  | Total |   |              | $ | 191,366 |      |  | $                           | 70,456                          |  |  | $     | 329,315 |  |                                        | $          | 399,771 |      |  | $ | 11,997                         |  |  | $             | 70,456 |  |                                        | $ | 341,312 |                             |  | $                










| | (1) | The
                                         aggregate cost of real estate for federal income tax purposes was $354,176,649 as of
                                         December 31, 2018.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Includes
                                         gain on acquisition of hotel property of $2,000,000.
| | --- | ------------------------------------------------------------------------------------------------------



| | (3) | 100%
                                         of sthe Class B membership interests of a joint venture.
| | --- | ------------------------------------------------------------------------------------------------------



F-29





****MOODY NATIONAL REIT II, INC. SCHEDULE III REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION (CONTINUED)DECEMBER 31, 2018****



|                                     |  | ****2018**** |         |  | ****2017**** |  
|------------------------------------ |  | ------------ | ------- |  | ------------ | -
|Real estate:                         |  |              |         |  |              |  
|Balance at the beginning of the year |  | $            | 403,180 |  |              | $
|Acquisitions                         |  |              | —       |  |              |  
|Improvements and additions           |  |              | 8,588   |  |              |  
|Dispositions                         |  |              | —       |  |              |  
|Balance at the end of the year       |  | $            | 411,768 |  |              | $
|                                     |  |              |         |  |              |  
|Accumulated depreciation:            |  |              |         |  |              |  
|Balance at the beginning of the year |  | $            | 6,545   |  |              | $
|Depreciation                         |  |              | 12,083  |  |              |  
|Dispositions                         |  |              | —       |  |              |  
|Balance at the end of the year       |  | $            | 18,628  |  |              | $



F-30