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Windows 2008R2 stuck on Applying Computer Settings

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Hello, I have a Windows 2008R2 server (not a domain controller) running on VMware ESXi. The server had no issues up until now. The server was rebooted this morning and since then has been stuck on Applying Computer Settings screen, attempted few restarts but no improvement. Took it out of the OU and moved to an OU without any group policy, restarted the server and still stuck on the same screen. Can login to safe mode though so enabled GP diagnostic and the gpsvc.log has these lines, over and over again. I looked around but couldn't find anything useful.

GPSVC(39c.3fc) 14:43:41:049 Could not find user by sid, finding user by session id
GPSVC(39c.3fc) 14:43:41:049 Caller requesting for user notification/lock is from session 0
GPSVC(39c.974) 14:43:41:049 Target = S-1-5-18, ChangeNumber 0
GPSVC(39c.974) 14:43:41:049 Could not find user by sid, finding user by session id
GPSVC(39c.974) 14:43:41:049 Caller requesting for user notification/lock is from session 0
GPSVC(39c.974) 14:43:48:265 Target = Machine
GPSVC(39c.3fc) 14:43:48:265 Target = Machine, ChangeNumber 0
GPSVC(39c.974) 14:43:48:265 Target = S-1-5-18
GPSVC(39c.974) 14:43:48:265 Could not find user by sid, finding user by session id
GPSVC(39c.974) 14:43:48:265 Caller requesting for user notification/lock is from session 0
GPSVC(39c.974) 14:43:48:281 Target = S-1-5-18, ChangeNumber 0
GPSVC(39c.974) 14:43:48:281 Could not find user by sid, finding user by session id
GPSVC(39c.974) 14:43:48:281 Caller requesting for user notification/lock is from session 0

I have got this update downloaded but can't apply as the server is stuck on that applying computer settings screen. Can someone please help with this? 

UPDATE: Finally, after couple of hours, now I see the login screen. Enter credentials, hit enter and now the server is sitting on Applying User Settings. What is going wrong? How can I get to the bottom of it without restarting because I know if I reboot it again, I will be waiting for hours for it to come back.

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